November 28, 2023

Investment Banking

Let Your Investment Banking Do The Walking

JP Morgan investment bankers suffer 30% bonus cut as takeover deals slump | JP Morgan

JP Morgan has slashed bonuses for investment bankers by 30% after a slump in takeover deals as corporate clients braced for a widely predicted recession.

Wall Street’s largest lender reported a 22% drop in full-year profits to $38bn (£31bn) on Friday, having suffered the ripple effects of the economic slowdown linked to the war in Ukraine.

Some of its largest losses for 2022 were recorded in its investment bank, with a 58% drop in fees from dealmaking in the fourth quarter alone, contributing to a 29% decline in the division’s annual profits to $15bn.

JP Morgan’s chair and chief executive, Jamie Dimon, said investment banking fees were “down significantly in a challenging environment”.

Investment banks the world over have recorded a drop in demand after Russia’s invasion of Ukraine, which rattled global markets and made companies more cautious about pursuing deals and raising money on the financial markets, for fear their shares would be undervalued or they have to pay more for debt.

While JP Morgan does not break out its bonus pool from its overall pay figure, a source close to the lender confirmed investment bankers were taking a 30% hit to their bonuses as a result of the poor performance.

That is despite overall pay at the bank, which includes salaries, rising by 8% to $41bn, reflecting the fact that the bank hired almost 23,000 new staff over the year, bringing its global workforce to 293,700.

Executive pay decisions will be revealed in a separate announcement expected next week.

JP Morgan also put aside $6.4bn for potential customer defaults for the year, including $2.3bn in the fourth quarter, noting that while the US economy still appeared to be “strong”, there was continued uncertainty about the year ahead.

“The US economy currently remains strong with consumers still spending excess cash and businesses healthy,” Dimon said.

“However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening,” Dimon added.

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“We remain vigilant and are prepared for whatever happens, so we can serve our customers, clients and communities around the world across a broad range of economic environments.”

Rival US banks also reported a drop in full-year profits on Friday, including Bank of America, which said earnings tumbled 14% to $27.5bn, while Wells Fargo suffered a 39% slump to $13bn.

Citigroup said profits fell nearly a third to $14.8bn from $22bn in 2021.