Bloomberg News

JPMorgan Investment Bank Reduces Workforce, Compensation Costs

October 13, 2011

Oct. 13 (Bloomberg) -- JPMorgan Chase & Co. reduced its investment-bank workforce by almost 4 percent in the third quarter and cut employee compensation 28 percent as the division grappled with fallout from the European debt crisis.

The investment bank had 1,101 fewer employees at the end of September than three months earlier and will continue to shrink its staff of 26,615, Chief Executive Officer Jamie Dimon, 55, told reporters on a conference call after releasing third- quarter earnings today.

While the bank isn’t planning layoffs, “we always trim our sails,” Dimon said. “You’ll see the headcount coming down as some of these systems get rolled off to reduce costs.” The firm will be “squeezing a little bit here and squeezing a little bit there” to trim the workforce by about 1,000 additional people, or “maybe a little bit more” in the next 18 months, he said.

Jes Staley, CEO of JPMorgan’s investment bank, braced investors last month for a drop in third-quarter revenue as the European debt crisis roiled markets, and the bank today said it may face similar challenges in the year’s final months. A pay reduction won’t likely drive out top performers amid such a difficult environment, said Michael Holland, founder and chairman of New York-based investment firm Holland & Co.

“When things get better they will participate,” Holland said in an interview with Erik Schatzker on Bloomberg Television’s “InsideTrack.” “When things are crummy, as they have been for the last number of quarters, they participate in the downside as well. A number of the star performers who are getting paid less will stick around, and I think it’s exactly the right way to run the business.”

Pay Per Employee

The investment bank generated a $1.64 billion profit in the third quarter, compared with $2.06 billion in the prior three months, according to figures posted today on the New York-based company’s website. Revenue at the unit fell 13 percent from the second quarter to $6.37 billion.

In the first three quarters, the unit set aside $7.71 billion, or 2 percent less than a year earlier, even as it generated 10 percent more revenue. The expense, which includes salaries, bonuses and benefits, was enough to give each of the division’s employees $289,611. For the same period last year, the unit set aside $7.88 billion to pay traders, dealmakers and other personnel, or $298,866 for each of the 26,373 people on staff as of Sept. 30, 2010.

Compensation costs fell to $1.85 billion in the third quarter, compared with $2.56 billion in the second quarter. Average compensation per employee dropped to $69,510 from $92,510, the bank said. Companywide, staff expanded 3 percent to 256,663.

Less Revenue Spent

Staley set aside 35 percent of the division’s revenue for pay in the first nine months, down from 37 percent in the same period a year earlier, excluding a 2010 U.K. bonus tax, according to today’s disclosure.

Fees from investment banking tumbled 46 percent to $1.04 billion in the third quarter, compared with the previous three months. About $2 trillion in global corporate bond issues came to market in the first half before volume plummeted to $553.3 billion in the three months ended Sept. 30, according to data compiled by Bloomberg.

The average compensation figures are derived by dividing the overall compensation pool by the number of employees, and they don’t represent individual workers’ actual pay. Investment banks set aside revenue throughout the year for pay and typically decide bonuses at year-end.

“The market-related businesses clearly experienced pressure from the volatility, reduced volumes and mark-to-market pressures” amid the quarter’s market tumoil, Chief Financial Officer Doug Braunstein told reporters on a conference call.

--With assistance from Charles Mead in New York. Editors: David Scheer, Dan Kraut.

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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