JPMorgan warns of up to 50% drop in investment banking fees

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JPMorgan Chase’s third-quarter investment banking revenue could be up to 50% lower than a year ago, one of the bank’s top executives warned on Tuesday.

Daniel Pinto, JPMorgan chairman and head of corporate and investment banking, said he expects third-quarter investment banking fees to be down 45-50% from $3.3 billion made a year earlier, after falling 44% in the first six months. of 2022. The bank will announce its results on October 14.

The bleak forecast for the largest US bank by assets, which is an industry indicator, underscores Wall Street concern over a slowdown in trading amid economic uncertainty, war in Ukraine and markets debt unfavorable to leveraged buyouts.

The fee drop follows a 2021 blockbuster and has raised the specter of lower premiums and potential job cuts on Wall Street. Goldman Sachs plans to launch a layoff program in the coming weeks that could affect hundreds of employees.

Pinto said JPMorgan would “adapt over time to whatever we think is a medium-term structure needed, and the overall size of the banking business needed, to accommodate that size of portfolio.”

“You have to be very careful when you have a bit of a downturn, to start cutting bankers here and there, because you’re hurting the possibility of growth going forward,” Pinto said.

“So if anything in an environment like this, there may be very, very high level bankers that you couldn’t access or hire in the past and now they’re available to hire.”

Since the lion’s share of bankers’ pay packages are performance-based pay, Pinto said the bank can “adjust not just by letting people go, but by cutting pay.”

He added that JPMorgan’s trading business, which has benefited from equity, credit and commodity market volatility this year, was on track to grow about 5% year-over-year in the quarter. In progress. In the first six months of the year, trading revenue grew 4% year-over-year.

Pinto also said the Federal Reserve’s interest rate hike, increased demand for loans and increased revolving balances in its card business would drive lending activity more than the bank had. previously planned. JPMorgan’s latest forecast for net interest income for the full year, excluding its trading business, was more than $58 billion. Pinto said the current environment meant more was now “bigger”.

Despite fears of a potential U.S. recession and high inflation, Pinto said JPMorgan sees the U.S. consumer as “in a very good position.”

“People don’t get much. . . of the wealth they have accumulated over the past two years. And they save less to pay to maintain their consumption and to pay higher prices,” Pinto said.

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