Wall Street slump leads to 50% plunge in JPMorgan advisory revenue

The deal-making slowdown that has weighed on Wall Street this year shows no signs of letting up.

Investment banking revenue at JPMorgan Chase is headed for a 45% to 50% decline in the third quarter from a year earlier, president and chief operating officer Daniel Pinto said Tuesday during a conference.

The bank posted $3.3 billion in third-quarter investment banking revenue last year, amid what was then a bull market for IPOs, stock issuance and other deals.

Now Wall Street is grappling with steep declines in capital markets activity as IPOs slow to a crawl and mergers declined after stocks had their worst first half since 1970. A bull market for bankers has turned to bust this year, and firms are expected to cut compensation and jobs in the coming months.

Yesterday, Goldman Sachs became the first major Wall Street firm to acknowledge that it was pulling back on headcount by cutting hundreds of jobs this month.

When asked whether JPMorgan would follow suit with its own layoffs, Pinto responded that “over time” the bank will adjust its employee base to match the opportunities in global investment banking.

That is, in his view, about what the industry earned in 2020, he said.

The total pool of investment banking fees jumped from about $79 billion in 2019, before the pandemic, to $95 billion in 2020 and $123 billion last year, Pinto said. The fee pool is expected to shrink to $69 billion in 2022, but Pinto believes that it will eventually rebound to 2020 levels, he said.

JPMorgan can adjust its cost structure not only by cutting jobs, but also by reducing the size of employee bonuses, he said.

“The banking business has a big component of variable compensation,” Pinto said. “You can adjust not just by letting people go, you can adjust by reducing costs.”

Still, managers “need to be very careful when you have a bit of a downturn” to not cut too deeply because that will hurt the business when volumes return, he added.

Trading has provided a welcome boost this year, however.

JPMorgan said that markets revenue was headed for a 5% increase from a year earlier, as strong activity in fixed income offset lower equities trading revenue. A year ago, the division posted $6.27 billion in revenue.

Read more: Wall Street layoffs likely ahead as two-year hiring boom turns to bust