JPMorgan is swimming against the tide
Right now, for example, the firm is hiring senior bankers in "underpenetrated" sectors, including tech, healthcare, and China.
It's also making significant technological investments in its sales and trading businesses.
That's according to CEO Jamie Dimon's annual letter to shareholders, in which he was asked in a Q&A why JPMorgan is investing in banking and trading while other firms are cutting back.
"Trading is an absolutely critical function in modern society," Dimon responded.
He continued:
We disclosed on Investor Day that we continue to make a fair profit in almost all our trading businesses despite the higher costs and what is probably a permanent reduction in volumes. While the business will always be cyclical, we are convinced that our clients will continue to need broad services in all asset classes and that we have the scale to be profitable through the cycle.
He noted that much of the investment JPMorgan is making in sales and trading is in technology - "both to adjust to new regulations and to make access to trading faster, cheaper and safer than it has been in the past."
The firm is also investing in people in key divisions.
Here's a rundown from Dimon:
- Foreign exchange trading: "Our continued investment in the FX business, in which we process an average of nearly 500,000 trades each day, has propelled us to be a leader in the market."
- Equities trading: "In the last five years, on the back of our investments in both technology and people, our U.S. electronic cash equity market share has nearly quadrupled."
- Prime Brokerage: "Our Prime Brokerage platform, which was once a predominantly U.S. operation, is now a top-tier global business that continues to grow clients and balances. Our international and DMA (direct market access) electronic footprint has expanded rapidly since 2012."
- Rates trading: "We have developed automated pricing systems that can price swaps in a fraction of a second on electronic platforms. Our SEF (swap execution facility) aggregator allows clients to see the best price available to them across the global market of interest rate swaps and 'click to trade' via our platform on an agency basis."
- Commodities: "We have developed a complete electronic offering in precious and base metals. We are also extending the same capabilities to energy products, where we have executed our first electronic trade in oil. We plan to further extend our e-trading capabilities across the commodities markets, including agricultural products."
- Derivatives processing: "The implementation of our strategic over-the-counter derivatives processing platform has promoted a 30% increase in portfolio volume and a more than 50% decrease in cost per trade in four years."
Here's where the firm is investing in research and client coverage:
- Investment bank coverage: "We are actively recruiting and hiring senior bankers in areas where we were either underpenetrated or where there has been incremental secular growth, such as energy, technology, healthcare and Greater China."
- Research: "We continue our research investments both in the quality of our people and in the number of companies and sectors we cover. In 2015, we expanded our global equity research coverage to more than 3,700 companies."
The idea of doubling down where others may be backing off is not new to JPMorgan.
At the annual investor day conference in February, for example, Dimon confirmed the firm was investing in fixed income while rivals retrenched.
Revenues dropped 9% in that business across Wall Street banks last year, and many firms have been cutting jobs in the division. Dimon said JPMorgan was investing in that business "on the technology side" too.
Read the full shareholder letter here »