With a solid foundation built on scale, completeness and the reach of a global network, the Corporate & Investment Bank (CIB) is well-situated to sustain its leadership in 2016.
Among the steps we’ve taken to secure our position, we have committed to being at the forefront of the technology evolution. We are embracing the innovations that will raise the level of our client service and are identifying ways to increase productivity in our own operations.
Our clients – major corporations with operations around the world – turn to J.P. Morgan for the integrated services and financial capabilities of an investment bank that can help them implement strategic solutions. Whether it’s to raise capital, advise on a merger or acquisition, provide hedging or liquidity solutions, or help with payments across borders and currencies, the CIB has the complete range of services to fulfill client needs.
The CIB’s business model continues to deliver for its clients, demonstrating its worth and resilience. We strengthened our market leading positions across products and geographies, but we know that our top rankings cannot be taken for granted and must be continually earned through our work and our dedication to doing right by our clients. Our firm’s leadership is due to several factors, but, above all, our success is a testament to our employees based in 60 countries and their focus on client service.
We delivered solid results in 2015 and made progress on multiple priorities. The CIB reported net income of $8.1 billion on net revenue of $33.5 billion with a reported return on equity (ROE) of 12%. Excluding legal expense and business simplification, the CIB earned $9.2 billion with an ROE of 14%. This reflects an increase of 110 basis points, compared with 2014, on capital of $62 billion.
Our strong performance was achieved despite external concerns over:
- Slower emerging markets growth, particularly in natural resource driven economies.
- Persistently low global interest rates, weakening credit markets and liquidity challenges.
- A slowdown in China’s gross domestic product growth rate and currency volatility.
- Geopolitcal challenges
- The Fed’s long-awaited move to tighten interest rates.
Our ability to maintain expense discipline, while absorbing increased regulatory and control costs, was demonstrated by our success this year in achieving a reduction of $1.6 billion in expenses toward our previously stated $2.8 billion target by 2017.
Throughout the year, we identified ways to redeploy resources in order to maximize shareholder returns. For example, we reduced non operating deposits, level 3 assets and over-the-counter derivative notionals, all while minimizing the impact to clients. These actions helped to lower the firm’s estimated global systemically important bank (GSIB) capital surcharge from 4.5% to an estimated 3.5%. This was a significant undertaking and demonstrated our ability to adapt nimbly to the changing regulatory landscape.
While making these business adjustments, we never lost our client focus. Once again, J.P. Morgan ranked #1 in Global Investment Banking fees, according to Dealogic, with a 7.9% market share. In addition, the CIB ranked in top-tier positions in 16 out of 17 product areas, according to Coalition, another industry analytics firm. For example, Equity Capital Markets ranked #1, up from #2 in 2014. In Fixed Income Markets, Securitization and Foreign Exchange also moved up, garnering top-tier positions last year. In Equity Markets, we are making progress in Cash Equities, having gained 90 basis points in market share compared with 2014. Our consistently high rankings and progress are a result of the trust our clients place in us year after year.
During 2015, we helped clients raise $1.4 trillion of capital. Of that amount, $55 billion was for nonprofits and government entities, such as state and local agencies and institutions.
Technology and innovation are embedded in all of our businesses
The CIB accounts for a significant portion of the firm’s more than $9 billion technology budget.
Our clients count on us to deliver immediate access to strategic advice, markets and solutions using the most efficient means possible. To meet their expectations, we are embracing structural market changes and developing state-of-the-art electronic trading capabilities across a broad range of products.
Our technology commitment is unwavering and is aimed at decreasing costs, which makes our operations more efficient and improves our clients’ experience. Technology is enabling us to shorten client onboarding times, speed transaction execution and reduce trading errors. Clients are using J.P. Morgan Markets to access research, analytics and reports on their mobile devices.
In addition, we are embedding technologists within our product groups and strengthening our partnerships with in-house teams to explore ways to broaden our use of newer technologies, such as distributed ledgers, machine learning, big data and cloud infrastructure. We are also building Financial Technology Innovation Centers, as well as launching a residency program and inviting startup firms to work with us on breakthrough, scalable technologies.
Technology already is benefiting our businesses: In Rates, electronic client revenue was up 47% year-over-year; in Equities, the gain was 27%. And the cost per trade has shrunk between 30% and 50% since 2011, depending upon the asset class.
We launched a technology platform for chief financial officers and corporate treasurers, J.P. Morgan Corporate Finance Dashboard, to provide mobile access to customizable market information and live desk commentary through J.P. Morgan Markets. In addition, we have introduced a version of J.P. Morgan QuickPay to speed electronic payment capabilities for corporate clients.
Treasury Services: An integral contributor to the CIB's growth
Global multinational companies require an international bank, particularly as the growth in cross-border trade requires a sophisticated roster of services. J.P. Morgan’s Treasury Services business ranks #2 globally and supports about 80% of the global Fortune 500, including the world’s top 25 banks.
In all, Treasury Services has about 14,000 wholesale clients, including Commercial Banking’s roster, and handles $5 trillion in payments per day. Treasury Services also ranks #1 in global U.S. dollar wire transfers.
The business landscape, fragmented by multiple players, creates an opportunity for the consolidation of market share as clients look for global solutions.
According to consulting firms and our internal analysis, the Treasury Services revenue pool is expected to grow from $144 billion as of 2014 to around $280 billion by about 2024. The cross-border business has grown 13% in the past three years and, while we have a strong existing franchise, significant opportunities still remain. As global commerce becomes increasingly interconnected, multinational clients will extend their operations across more borders. Our ability to scale our services to their needs for efficient payment systems, additional hedging solutions and foreign exchange products will help drive solid growth in our Treasury Services business.
A noteworthy success last year was our rigorous effort to reduce non-operating deposits by $75 billion out of the CIB’s overall $130 billion reduction.
Treasury Services has a platform that is difficult to replicate and offers holistic client coverage. Our unique capabilities in advisory and account structuring position J.P. Morgan well to serve the growing number of global multinationals that have complex needs across regions, countries and currencies.
Investing in Custody and Fund Services to build on strong market position
The Custody and Fund Services business provides custody, fund accounting and post-trade services. The long-term prospects for the business are strong, driven by growth in institutional assets under management, globalization of asset flows, desire for higher efficiencies and innovation across the value chain.
With nearly $20 trillion in assets under custody, Custody and Fund Services is strategically important to the CIB. According to consulting firms and our internal analysis, the Custody and Fund Services revenue pool is expected to grow from $38 billion as of 2014 to $54 billion by about 2020. The business generates significant, sustainable revenue; produces a through-the-cycle operating margin of more than 25%; and provides about $100 billion in operating deposits, which supports the firm’s liquidity and balance sheet positions.
As clients expand their product ranges, asset classes and distribution channels, we will be able to drive future growth through investments in high-growth areas, such as exchange-traded funds, alternatives and derivatives. We will continue to build on our world-class capabilities in Emerging Markets, which already encompasses more than 75 emerging and frontier markets worldwide. Additionally, we are focused on driving process automation and standardization across the operating model while investing in analytical tools and capabilities to meet increasing demands for data transparency and integration across products.
We are in a competitive business. We must be willing to adapt to changing environments and not be content to rest on the laurels earned in previous years. We intend to target sectors and countries where we see expansion opportunities.
We will continue to invest strategically in talent to cover key growth sectors, such as technology, media and telecommunications, and healthcare. In addition, we are investing in countries, such as Germany, the United Kingdom and China, building a talent base where we see the greatest long-term opportunities. Another focus will be to effectively deploy capital by undertaking a comprehensive view of our clients, taking into account capital and liquidity utilization, pricing terms and overall profitability.
Sustaining our strength in Global Investment Banking has enabled us to deliver the entire firm. J.P. Morgan has distinguished itself with its clients by integrating our product and coverage teams to deliver seamless solutions. In just one example, the CIB and Commercial Banking have continued to collaborate so that midsized firms can benefit from the differentiated services offered within the Investment Bank. As a result of that collaboration with Commercial Banking, between 2008 and 2014, we grew Investment Banking revenue from $1 billion to $2 billion, and last year, we gained another 10%, generating $2.2 billion.
Merger and acquisition activity, a highlight in 2015, is expected to remain strong. Despite the challenging year for Fixed Income, we were able to increase our market share by 170 basis points, according to Coalition.
We intend to strengthen our #1 position in Fixed Income by closing the few regional and product gaps that exist. We’re sometimes asked: “Why not reduce the Fixed Income business?” The answer: The business delivers a solid 15% return to shareholders. Additionally, our ability to serve the needs of our Fixed Income clients helps ensure a broad-based relationship that earns business across products.
The Equities business was strong in 2015 despite increased competition. According to Coalition, our revenue growth of 13.5% last year and 28.4% since 2011 exceeded the overall market’s growth in both periods. Over the past five years, our Equities business has outperformed the #1 competitor in revenue growth, according to Coalition. To accelerate this progress, we strengthened the relationship between the Prime Brokerage and Equities businesses, integrating the leadership and its offerings. Equities also is making a great deal of progress on the optimization front by investing in a client profitability engine and other analytical tools that improve our ability to monitor and utilize the CIB’s balance sheet.
The CIB’s scale, completeness and global network have enabled J.P. Morgan to be our clients’ safe haven, whether in times of volatility or stability. While this is an important and essential role, our culture also demands we serve our clients with integrity and provide the best advice, talent and appropriate portfolio of products. To that end, we discuss our culture openly in various forums and regularly ask employees for feedback to understand what we do well and ways we can do better. Thousands of employees have participated in focus groups, and we conduct training to ensure we consistently instill best practices and stay true to our principles in all of our dealings.
A forward-looking approach
Looking ahead, we have been investing in the technology and infrastructure that will ensure we retain, expand and improve on our client relationships by being attuned to the various ways they want to work with us.
Building on our capital strength, the CIB is focused on optimizing capital across multiple regulatory constraints in order to deploy our resources profitably. We have a proven track record of being able to execute on capital optimization but in ways that carefully consider the impact on clients. Long term, the approach is to identify ways to maximize returns while adhering to the risk, liquidity and leverage standards governing the CIB.
The CIB has maintained its strength while adjusting to the inevitable market shifts and by remaining true to its overriding model. We were able to withstand the headwinds of 2015 on the strength of a business model that takes advantage of scale, completeness and the reach of a global network. Last year’s challenges – consisting of market volatility, geopolitical events, uncertain moves in commodity prices and a slowdown in emerging markets, among others – have carried over into 2016.
We are confident that our business model will continue to be successful in the coming year and beyond. We are committed to remaining a global investment bank with a complete range of products. And by embracing technology, we intend to mine the efficiencies of digital capabilities while improving the services we can provide to clients.
Above all, we know that our leadership is only one way to measure how well we serve our clients. As was the case last year, our top priority is to help our clients achieve their objectives backed by the best products and services we can provide. In the end, our clients’ success is the true measure of ours.
CEO, Corporate & Investment Bank
2015 Highlights and Accomplishments
- Ranked #1 in Global Investment Banking fees with a 7.9% market share, according to Dealogic, and ranked in top-tier positions in 16 out of 17 product areas across the CIB, according to Coalition.
- The CIB has embarked on a major effort to embrace technology in order to offer clients a broader array of trading platforms in which to transact with J.P. Morgan.
- Raised $1.4 trillion of capital for clients. Of that amount, $55 billion was on behalf of nonprofits and government entities, such as state and local agencies and institutions.
- The CIB’s leadership and role as a trusted partner to our clients helped drive the firm’s total merger and acquisition volume to $1.5 trillion.
- Reduced non-operating deposits, level 3 assets and over-the-counter derivative notionals, which helped reduce our estimated GSIB capital surcharge from 4.5% to an estimated 3.5%.
- The Treasury Services business supports approximately 80% of the global Fortune 500, including the world’s top 25 banks.
- Treasury Services handles $5 trillion in payments per day.
- Custody and Fund Services has nearly $20 trillion in assets under custody.