Investment bankers have been warned to watch the market closely as it link with their future in finance. Often seen as Wall Street’s analysts and dealmakers, investment bankers generally do not face the same risks as everyday traders. However, they have now joined the ranks of regular traders in being told that the market must be watched carefully if they expect to survive. The CFO of JP Morgan, Marianne Lake, made a statement at an investment conference this week that has made everyone take notice. Ms. Lake stated that “too much capacity in the bond and currency market could lead to very anemic revenue.” She went on further to state that this anemic revenue would result in cuts in compensation and layoffs throughout JP Morgan.
Considering that JP Morgan is the largest investment bank in the world, her words sent shock waves through Wall Street. JP Morgan has already begun to cut compensation rates. Lake stated that this is taking place right now and is happening fast. She also stated that the ratio between compensation and revenue could rise from the low 30’s to 35 percent or higher. This is unwelcome news to everyone.
The comments that Lake has made should be seen as a warning of upcoming Wall Street shrinkage. If JP Morgan is “feeling the pain,” it is easy to assume that smaller investment banks are already experiencing the same trend. Just last month JP Morgan stated that it was expecting a 20 percent dip in trading revenue during the second quarter of 2014. In fact, Morgan Stanley has already began to cut rates and forex traders from their offices around the world. Ms. Lake stated that this downturn is all part of a Wall Street cycle. However, she did not state how long this cycle would last or what events could take place to make the downturn end.