It’s not just traders, now investment bankers — Wall Street’s analysts and dealmakers etc. — need to watch their backs too.
JP Morgan CFO Marianne Lake fired off the warning shot at an investor conference yesterday.
Specifically Lake said that “too much capacity” in bond and currency trading could lead to revenue so anemic that layoffs and compensation cuts may have to be made throughout JPM’s investment bank — the biggest investment bank in the world.
And this is happening fast. So fast that even as JPM cuts compensation, the ratio between compensation and revenue could rise from the low 30% to 35% or more, Lake said.
So if JPM can’t hack it, expect other investment banks to feel the pain too. This just shows how bad things really are on the Street as the market remains silent and deadly.
Lake’s statement may seem like a quiet shift, but it’s a big one. Traders are going to suffer, we’ve known that. Last month JP Morgan warned The Street that it was expecting a 20% dip in trading revenue in the second quarter. Morgan Stanley, for its part, has already cut forex and rates traders around the world.
Lake’s words are the first sign of a full-on Wall Street shrinkage.
In her speech, she said this problem was “cyclical,” but she never said when the cycle would end. No one knows what kind of catalyst will bring the market out of its current doldrums — rising interest rates, higher employment, maybe a full moon?