The uncertainty in the economy due to persistent inflation and continued interest rate hikes by the Federal Reserve is making a recession possible. This has forced clients to stay on the sidelines in investment deal-making activities. The result is JPMorgan Chase & Co investment banking income is set to fall 50% in the third quarter.
The biggest US bank revenue from its debt and equity underwriting and advisory services on deals is expected to drop between 45% and 50% in the quarter through September 30. This was disclosed in a Barclays Plc investors conference held in New York Tuesday by JPMorgan President Daniel Pinto.
JPMorgan earned a record advisory income of $3.3. a billion in revenues in investment banking fees in the third quarter of 2021.
According to Pinto, the largest US bank expects market revenues to grow 5% for the third quarter this year. Equity markets business was lower this year compared to $2.6 billion revenue last year. At the same time, macro businesses boost fixed income trading.
CEO Daniel Pinto has been overseeing corporate and investment banking as the sole president for a year now at JPMorgan. He also touched on the overhead count as the job cuts have been the focus of discussion on Wall Street lately, punctuated by Monday’s news of Goldman Sachs’s plans to eliminate nearly a quarter of jobs in a month.
Pragmatic Approach to Headcount
JPMorgan and Bank of America, among the largest banks by assets in the US, cautioned about job cuts in contrast to Goldman Sachs, which has already set the layoff process, which could start next week.
Pinto said one has to be careful with job cuts in the banking sector during downturns as it will hurt the growth opportunities in the future. The banking compensation consists of a huge variable component. Therefore it makes sense not to cut bankers and let people go. One can adjust the compensation instead. Pinto said that in banking environments, there might be some top bankers whom one could not hire earlier who can now get them as they are available to be hired.
Pinto outlined the economic scenario in his broad-based presentation where two central possibilities are seen equally. He sees a soft landing with a 4% rate by Central Bank, or the Federal Reserve goes ahead with more hikes to tame inflation and allow a shallow recession in the next couple of quarters. Pinto added that the US consumer is in a good space now.
Wall Street has been concerned with riding inflation and looming recession. The Federal Reserve interest rates hike has led to deals drying up in the market.
According to RIA Advisors, economist, and chief investment strategist Lance Robert, JPMorgan’s approach toward its workforce underpins its upbeat views.
