JP Morgan will Cut Trader Pays

If the latest Gucci gear is on the must-have shopping list for investment bankers, it might be time for a time out. However, the time out mystery is less about the trendiest styles than about the return on equity (ROE) drought. Indeed, according to Marianne Lake, a top finance executive of JP Morgan Chase, the banker’s banquet may be over. In fact, investment banker compensation may be on the block for sacrifice. The rationale behind chopping compensation? Firms are facing the reality that its overall revenue has taken a dive along with trading. Yet, the extent of investment trader compensation damage that may be on the horizon is anybody’s guess. Thus, time out for Gucci.

The golden glory of investment titans Goldman Sachs, JP Morgan and Morgan Stanley is legendary. Indeed, Gucci for every successful investment banker wasn’t a question. However, Morgan Stanley executive James Gorman joined the ominous chorus lead by JP Morgan’s Lake at the recent conference. Morgan Stanley intend to reduce banker payout against revenue shares. Despite past glory, today’s financial market is in turmoil, with the spoils of investment banking potentially headed for a bust. Now, Gucci may be a question. Consider that the investment banking industry focuses on certain trading activities–currencies, commodities and fixed income. Yet, these golden returns are growing thin not growing into gold.

In fact, the conference presentation by JP Morgan Chase’s Lake was loud and clear. With the ROE as a bank’s performance metric, the Commercial Investment Banking (CIB) titan has lost its trading mojo. The CIB’s ROE for the first quarter was 13% versus 19% two years ago. Further proof that it’s time for the investment banking industry as a whole to rally around Camp Gucci. When times are a changing, it’s time to rally bankers to upswing ROE back to some semblance of expected golden glory. Camp Gucci is at stake. Despite potential banker compensation cuts, the economic reality is that if revenues slip faster than pay, revenue share may rocket. However, increasing the already lean big bank compensation ratios would give shareholders unkind second thoughts. Gucci can’t wait.

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