JPMorgan Chase & Co.’s bonus pool for the corporate and investment bank may shrink as much as 2 percent this year as the firm finishes performance reviews, three executives with direct knowledge of the process said.
The amount in the pool won’t be set until after the company closes out 2012, said the people, who requested anonymity because the talks are private. Year-end bonuses at New York-based JPMorgan, the biggest U.S. bank by assets, are determined primarily by the performance of the company, followed by the division and individual employees, the executives said.
Workers across Wall Street are facing pay cuts or losing their jobs as revenue growth wanes and shareholders demand higher returns. Citigroup Inc., the third-biggest U.S. bank, plans to shrink bonuses by as much as 10 percent, excluding top performers, at the trading and investment-banking division, people with direct knowledge of the decisions said last week.
“If the JPM bonus pool only shrinks 2 percent this year, then I’d say that those guys, and women, are the luckiest folks on earth,” said Nancy Bush, an analyst and contributing editor at SNL Financial LC, a bank-research firm in Charlottesville, Virginia. “I expected much more shrinkage.”
JPMorgan gained 2.6 percent to close at $42.56 in New York, the most on the KBW Bank Index. The shares have climbed 28 percent this year, outpacing by 3 percentage points the advance of 24-company index.
The lender, led by Chief Executive Officer Jamie Dimon, 56, posted a record $19 billion in net income last year and may earn $20.8 billion in 2012 even as a wrong-way bet on credit derivatives cost the bank more than $6.2 billion in the first nine months, according to the average of estimates by 12 analysts in a Bloomberg survey.
The losses were linked to a trader in JPMorgan’s chief investment office, who was nicknamed the London Whale because his wagers were big enough to move the market.
“I’m surprised it wasn’t lower considering the London Whale fallout,” Matt McCormick, who helps oversee $7.3 billion as a money manager at Cincinnati-based Bahl & Gaynor Inc., said of the projected decline in the bonus pool. “I’d have thought that would have gone across all strategic business units.”
The trading loss won’t directly affect the corporate and investment bank bonus pool because the position was isolated at the CIO in London, two executives said.
Average 2012 compensation for JPMorgan’s 260,000 employees will drop or stagnate as the company resists an industry trend of mass firings, one executive said. Citigroup announced Dec. 5 that it’s cutting 11,000 positions as part of an industrywide contraction. Financial companies have announced more than 300,000 job cuts worldwide during the past two years.
JPMorgan faces fewer competitors in certain businesses and the bank’s $2.32 trillion balance sheet gives it more flexibility in offering financing to clients, which can then lead to more investment-banking business, said Chris Whalen, senior managing director at Tangent Capital Partners LLC.
“Bankers who have jobs right now are feeling fortunate,” Whalen said. “It’s a tough environment and people should be happy that JPM is paying bonuses. It’s indicative of the fact that they are one of the last men standing.”
JPMorgan doesn’t publicly disclose the size of the bonus pool.