JPMorgan has several excuses to squeeze bonuses for 2019

If any bank pays alright bonuses for 2019, it's supposed to be JPMorgan. While people at HSBC and Deutsche Bank are feeling fretful about their compensation to come, JPMorgan's bankers and traders have apparently been feeling more sanguine.

After today's results for the fourth quarter and the full year 2019, they may want to reconsider.

There's no mention of increased pay in the corporate and investment bank, although there's no mention of cuts either 

JPMorgan is usually fairly explicit about what's going on with bonuses in its corporate and investment bank (CIB).

For example, after a terrible fourth quarter in 2018, it said definitively that it had allocated less money to 'performance-based compensation.' In today's releases, this warning has not been repeated for the most recent quarter, but JPM has not committed to increased performance pay either. Instead, it says vaguely that 'revenue-related expense' was up in three months to December. 

There are some positive signs: spending on pay at the corporate and investment bank rose by 4% for the whole of last year while headcount rose by 2% (by 1,111 people). Average pay per head therefore increased slightly from $188k to $191k as a result. 

Strong Q4 growth in fixed income trading didn't reflect the full year 

JPMorgan's fixed income traders had an excellent end to 2019. Revenues in the business rose 86% on the fourth quarter of 2018, driven by what JPMorgan describes today as, 'strength across businesses, notably in securitized products and rates, driven by strong client activity and monetizing flows.'

However, as we already cautioned, there will be a tendency for banks' fixed income revenues to rise dramatically year-on-year in the fourth quarter simply because the fourth quarter of 2018 was especially bad. JPMorgan is one of those banks. - In Q4 2018 its fixed income markets revenues fell 35%. Strong relative growth one year later, can therefore be attributed partly to normalization. For 2019 as a whole, JPMorgan's fixed income trading revenues were up by a more modest 13%.

Various CIB businesses saw revenues contract last year 

While revenues rose 13% year-on-year in JPMorgan's fixed income trading business and by 8% in its debt capital markets (DCM) business, they fell in equities sales and trading (down 6%), they fell in M&A advisory (down 5%), and they fell in equity capital markets (ECM) (down 1%). 

Although overall revenues in the CIB were up by 5%, it's therefore hard to pass 2019 off as a growth year.

Margins are being eroded

Most importantly, both the return on equity and profit margins in JPMorgan's corporate and investment bank moved in the wrong direction in 2019. RoE fell from 16% in 2018 to 14% last year. Profits rose, but only by around 1% - at around a fifth the rate of the growth in revenues. 

While some people might get paid bigger bonuses for exceptional performance at JPMorgan in 2019, it's therefore hard to conceive of a strong bonus round for everyone. Instead, the bank needs to keep a firm grip on costs, and to hope that more of its units overcome what Jamie Dimon describes as 'a high level of complex geopolitical issues' and return to growth this year.

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