According to a Bloomberg report, JPMorgan Chase & Co (JPM - Free Report) has cut down the remuneration of its investment bankers and traders by nearly 3% for 2012. The impact of the unsettling economies of the U.S. and Europe has contributed primarily to the diminished compensation to employees.
However, portfolio managers and other executives in the asset management division will receive an average 6% hike in salary and bonuses. Senior investment bankers and traders have braced for reductions exceeding 10% to safeguard the junior and mid-level staff from sharper reductions.
The anticipation of diminished compensation comes in the wake of lesser activities at JPMorgan’s investment banking division. Net income at the investment bank for the first 9 months of 2012, before it was merged with the Corporate Bank and Treasury Services division, plunged 15% from the comparable prior period to $5.2 billion.
Moreover, JPMorgan’s Chief Executive Officer (CEO), Jamie Dimon has faced a 50% cut in his pay. His negligence in derivatives trading activities in the company's Chief Investment Office, leading to a multi billion-dollar loss, was primarily responsible for this pay cut.
JPMorgan joins a host of other banking giants that are stressing upon expense-reduction initiatives to counter a sluggish economic recovery. In addition to shutting down non-core units and opting for layoffs, these firms have started to slash remuneration to contain the spiraling costs.
Similar to JPMorgan, Morgan Stanley (MS - Free Report) has reduced compensations of its investment-banking unit by 8% and bonuses of roughly 20% of the employees have been put on hold. Moreover, this trend is not just limited to the U.S. banks.
Among European banks, Frankfurt-based Deutsche Bank AG (DB - Free Report) lowered its 2012 bonus pool by 11% to €3.2 billion. Barclays PLC (BCS - Free Report) is also expected to slash bonuses for investment bankers for 2012 by roughly 20%, in order to augment its profit levels.
We believe in a slow economic recovery, generating revenues has become a challenge. Therefore, to maintain and elevate profitability, banks are undertaking cost reduction measures such as layoffs and bonus cuts. Until economic recovery gains momentum, such actions are expected to boost profitability.
JPMorgan currently retains a Zacks Rank #3 (Hold).