JPMorgan's new solo head of its investment bank said he would be "laser focused" on reducing costs as the industry is likely to face a tough couple of years in terms of growing revenues.
"For the next year or two the industry's top-line will probably struggle. The long-term trends are good, but in the short term we need to adjust to the new reality," said Daniel Pinto, London-based chief executive of the corporate and investment bank (CIB) at class="mandelbrot_refrag">JPMorgan Chase & Co., the biggest U.S. bank by assets.
Rivals including Barclays and UBS are in the process of shrinking their investment class="mandelbrot_refrag">banks in a bid to slash costs, after a slump in trading revenues over the past year and tougher regulations are forcing banks to hold more capital and making some areas unprofitable.
But Pinto, who took sole charge of CIB in March after running it for two years with Michael Cavanagh, said there would be no big change in strategy.
"We need to be laser focused at looking at every item of cost, every item of capital and liquidity," he told Reuters on the sidelines of the Institute of International Finance's spring meeting. "In this environment, you need to be really efficient in every single thing you do."
U.S. class="mandelbrot_refrag">banks have cut back less than European rivals and have won market share. While JPMorgan has retreated from physical class="mandelbrot_refrag">commodities trading like some other banks, Pinto said JPMorgan's model was based on scale, a full product offer and global reach.
"There is no doubt that everything banks do is more costly in terms of capital, controls, liquidity and everything. If you don't have the scale it's more difficult to absorb fixed costs. Cutting parts of the business may not work - you may cut an area that's not profitable today, but a client will want to trade it the next quarter," he said.
He said savings can come from improving efficiency in processes, locations and technology, and compensation was likely to come down across the industry given banks' lower revenues.
However, he added the bank would still be able to pay competitively and make good returns to shareholders.
"This is a people business, and in order to have the best you need to pay well."
Pinto, 51, has spent his career at JPMorgan and companies the bank subsequently acquired. The Argentinian is seen, along with chief operating officer Matthew Zames, as a potential successor to CEO Jamie Dimon - who is one of the longest serving bank bosses but is not expected to step down any time soon.
RISK APPETITE WANES
JPMorgan said on May 2 that second quarter revenue from bond and equity trading was on track to decline around 20 percent from a year ago, based on lower client activity. Analysts expect other banks to show a similar drop.
"In general we are continuing with the same guidance," said Pinto, adding that investors' appetite for risk had been diminished by some big calls taken at the start of the year that went wrong.
"When you start a year like that, you end up in a situation where risk appetite is low," he said.
_0">Investors misjudged bets earlier this year on U.S. growth due to the impact of bad weather, the performance of cyclical class="mandelbrot_refrag">stocks, and a sharp bounce in some emerging class="mandelbrot_refrag">markets.
_1">Pinto said he was bullish on growth prospects for emerging class="mandelbrot_refrag">markets, but JPMorgan's expansion in some countries may be slowed by the need to implement tougher controls.
_2">"In the short-term, until we are fully adjusted to consent orders, new controls and regulations, we have been going slower in certain countries," he said.
_3">JPMorgan's CIB business has 52,000 staff in 60 countries and made an underlying profit of $9.7 billion last year.
_4">It had revenues of $24.7 billion last year, ranking first with a 13.4 percent share across the top 13 banks, according to consultancy Tricumen, compared to revenue of $29 billion in 2009 and a market share of 12.4 percent.
_5">Its underlying return on equity across CIB was 17 percent last year and has been between 15 and 19 percent in each of the last four years, well ahead of most rivals.
_6"> _7">(Editing by Sophie Walker)
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