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JPMorgan Chase & Co Chief Operating Officer Daniel Pinto said he’s reluctant to shed talent right away and instead may look to pick up bankers let go by other firms as inflation feeds talk of layoffs and recession on Wall Street.
Acknowledging that there could be a roughly 50% change of a “mild recession” ahead, Pinto said Tuesday he’s not expecting the investment banking business to come anywhere near the blockbuster results of 2021.
While Pinto’s suggests a fairly mild downturn, his boss, CEO Jamie Dimon, warned in June that an economic hurricane is coming. At the time, Dimon said he just wasn’t sure if the storm would be small or huge.
Also Read: JPMorgan’s Jamie Dimon sees economic ‘hurricane’ coming: ‘Better brace yourself’
In terms of the big investment banking slowdown this year, JPMorgan currently projects a 45% to 50% drop in third-quarter fees when the company reports results next month, Pinto said.
While Pinto didn’t rule out more gradual headcount reductions over time, JPMorgan
JPM,
isn’t keen on letting bankers go right away because they play a big role in the bank’s corporate and institutional relationships, he said Tuesday at the Barclays Global Financial Services Conference.
“You need to be very careful when you have a bit of a downturn to start cutting bankers here and there because you will hurt the possibility for growth going forward,” Pinto said, according to a transcript of the event. “So if anything, in some environments like this, there may be some very, very top bankers that you could not access or hire in the past, and now they’re available to be hired.”
He said the bank plans to “adjust over time” its investment banking unit to match whatever it sees as a “medium-term structure” needed to support clients, he said.
A combination of gradual head count adjustments and reduced compensation will bring the banking business to a “more stable level” after the bank added “a lot of bodies just to execute the huge amount of volume” in 2021, Pinto said.
Investment banking fees, or IB wallet, totaled $123 billion overall in 2021, up from $95 billion in 2020. Citing industry data, Pinto said the investment banking business overall is expected to generate about $70 billion in fees in 2022. Pinto said 2020 would be a good measure of normalized levels of investment banking activity.
Summarizing the lack of capital raising, initial public offerings and an overall downturn in investment banking, Pinto said uncertainty about the economy and interest rate hikes have impacted deal-making and now the Fed has become even more hawkish.
Also Read: Any doubt Fed will raise rates by 75 basis points next week is gone after hot U.S. inflation data
He sees two central scenarios with relatively equal probabilities: a soft landing in the economy with the Fed raising the core rate to 4%, or the Fed possibly raising rates to 5% to tame inflation.
In the latter scenario, “[the] unemployment rate may have to go to 4.5% or 5%. and there may be a couple of quarters of a shallow recession, which is a bit worse than the previous scenario, but not terrible,” Pinto said.
On the positive side, energy prices are coming down and some of the supply chain challenges the U.S. faced are now being resolved, with a very hard labor market and strong demand, he said.
Pinto’s comments came as Wells Fargo & Co.
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JPMorgan and Citigroup Inc.
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are shedding jobs in their mortgage businesses and other units. That’s a reversal from the second quarter, when head count numbers climbed.
Also Read: Bank stocks tumble after data shows inflation roaring back in August, sending bond yields higher
