It's JPMorgan's 2019 investor day. Whether you work for JPMorgan or not, you need to know what's going on inside the world's banking behemoth. This is what was said about JPM's corporate and investment bank (CIB).
1. JPMorgan's sales and trading business is struggling. And this means other banks' will be too
2019 is not starting well. Daniel Pinto, head of JPMorgan's corporate and investment bank, said today that JPM's sales and trading revenues are currently down in the "high teens" in percentage terms in the first quarter compared to last year. This follows similarly ominous statements about sales and trading revenues from Morgan Stanley and Citi. While JPMorgan can withstand a slow quarter (Pinto said JPMorgan's fixed income returns are “very high”), other banks are not so well placed. - What happens next if you're at a Deutsche Bank or a Credit Suisse, for example?
2. Technology spending will now be squeezed
First they came for the compliance staff. Now they're coming for the technologists.
The huge increase in technology spending at JPMorgan's corporate and investment bank has not gone unnoticed. In the past year alone, the CIB increased its technology spending by $400m. Now it wants to sweat that spending as much as possible through a process of technology "transformation."
“We need to avoid building everything from zero to one hundred every single time,” said Pinto. One of JPM's aims for 2019 is therefore to build application programming interfaces (APIs) which are standardized and reusable, both within JPMorgan and externally with the bank's clients.
Where JPMorgan goes, other banks will inevitably follow. Technology has been the big growth area in banks' spending over the past three years and technology efficiencies beckon even as banks deploy technology to become more efficient in other areas.
Alongside efficiency and transformation, Pinto's presentation said JPMorgan's CIB is also investing in analytics, self-service and customized client experiences, a 'multi-cloud' and a 'hybrid-cloud', artificial intelligence, distributed ledgers and cybersecurity. In particular, JPMorgan wants to increase its AI-driven execution capabilities in sales and trading and to improve its data analytics and visualization functions for sales.
3. JPMorgan's success in equities was all about electronic trading
In 2014, Pinto said JPMorgan accounted for 7.9% of global equities trading market share. In 2018 it accounted for 11.2%.
Between 2014 and 2018, JPMorgan gained ~250bps of market share in cash equities, ~300bps of market share in equity derivatives and ~280bps of market share in prime finance.
Over the same period, it achieved a 30% increase in revenues from program trading and a 25% increase in revenues from low touch (electronic) equities trading. However, the bank's high touch equities trading revenues (involving heavy intervention of sales traders) fell 4%.
4. There's been some crazy growth in FX algorithmic trading and electronic trading in euro swaps
In the past year alone, JPM says its volume of algorithmic-driven FX trades has risen 44% and that requests for quotes (RFQs) for 1 euro swaps are up 205%.
As electronification increases, the bank is investing in technology to improve clients' access to its algorithms and analytics in order to reduce their costs. This looks like the battleground for 2019.
5. Some fixed income products are resisting electronification
One of the most interesting charts in Pinto's presentation is shown below. It reflects the amount of electronification JPM expected to see in each product channel this time last year versus the reality.
If you're a human being who wants to keep your job in trading, the chart suggests you want to be working on an EMEA rates swaps desk, in emerging market local currency bonds, or in government bond trading in the Americas.
6. JPMorgan is owning both the institutional and the corporate client spaces
Remember how Goldman Sachs is trying to grow its fixed income business by increasing its penetration of the corporate client space?
Pinto today rubbed Goldman's collective nose in JPM's success, noting that the bank has increased its share with corporate clients by 120bps since 2014, whilst simultaneously adding 220bps of market share with hedge fund managers, 270bps with asset and wealth managers (another area targeted by Goldman) and 140bps with banks and the insurance sector.
While Goldman Sachs pushes for growth in its own fixed income sales and trading business, the implication is that JPM has (latterly) beaten Goldman to it.
To rub salt into this wound, Pinto devoted the latter half of his presentation to JPM's $11bn wholesale payments business, which has experienced 28% revenue growth in two years. Goldman Sachs divulged its intention to build something similar back in January, but is clearly rather behind.
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