During a year of significant volatility, the Corporate & Investment Bank (CIB) consistently delivered for its clients. Throughout 2016, we increased or maintained our leading positions by avoiding complacency, reinforcing our culture of meeting the highest standards and attracting the best talent in the industry.
By adhering to those principles, the CIB achieved impressive results in 2016. Record earnings of $10.8 billion were up 34% compared with 2015, and our $35.2 billion in total revenue reflects a gain of 5% over the previous year. That performance produced a superior return on equity (ROE) of 16% on a capital base of $64 billion.
Providing clients with capital and liquidity during volatile market conditions has become even more essential in recent years. As some competitors retrenched and signs of decreasing liquidity emerged, we remained supportive and accessible. Our global scale, complete product set and the strength of our balance sheet, underpinned by our sound risk management practices, enabled us to consistently serve clients, a factor in driving wallet share increases across our already top-ranked businesses.
We don’t take our leadership for granted, though. Despite our leading franchises, we continue to look beneath the surface of our businesses, ask the critical questions and make improvements where necessary. We are committed to staying ahead of the curve and embracing the technological changes affecting our industry in the face of competitors, both new and traditional.
By investing in scalable platforms and innovative trading tools and improving the overall experience, we are serving clients better, faster and more efficiently than ever before. More important, while we drove annual expenses down to $19 billion by staying disciplined, we still kept investing for the future. The market share gains we experienced in 2016 were supported by the CIB’s profitability and our willingness to make strategic investments in innovation that will bolster our growth for years to come.
The past year demonstrated once again that there will always be unpredictable global events. One unknown is the ultimate outcome of negotiations between the U.K. and the EU. We are fortunate to have options in terms of locations and legal entities that will allow us to serve clients seamlessly during the transition. We will need to make adjustments, but our commitment to clients in the U.K. and the EU is as strong as ever.
By continually improving, adapting and being prepared, we are better able to respond. That’s what our clients have come to expect, and we know that their success is the foundation for ours.
Strengthening investment banking leadership
Investment banking has always been about deep, long-standing relationships and solutions. Clients want consistent coverage, good ideas and global capabilities. We have an exceptional Investment Banking franchise that consistently ranks #1 globally. That success continued in 2016 with an 8.1% share of the global fee wallet.
We take immense pride in our people and the talent at J.P. Morgan, and our #1 standing is mainly due to the fact that we have the industry’s best bankers. Still, there are sectors and geographies in which we can always improve. Since 2014, we have hired approximately 60 investment bankers, about 40 of whom were managing directors, who brought experience and relationships that will help bring J.P. Morgan’s full suite of solutions to even more clients.
Our bankers represent a franchise that has a full range of global capabilities. Our Debt Capital Markets team retained its hold at the top of the global debt league tables. Its expertise and the firm’s ability to deliver capital in scale for complex financings set us apart.
One standout deal of the year was evident in J.P. Morgan’s role as the lead financial advisor to Dell Inc. and Silver Lake Partners on Dell’s $67 billion acquisition of EMC Corporation, the largest technology transaction in history. In addition, J.P. Morgan served as global financing coordinator on Dell’s $49.5 billion of committed financing associated with this transaction.
We also remain a leading source of debt capital for U.S. nonprofit and governmental entities, specifically states, municipalities, hospitals and universities. Last year, J.P. Morgan raised $90 billion of credit and capital for these important clients.
In 2016, we also were the top equity underwriter. Despite a difficult environment for initial public offerings (IPO) and a significantly smaller industry wallet, J.P. Morgan was the only global bank to gain share last year. Our bankers led 343 deals, more than any other bank. J.P. Morgan was a global coordinator and sponsor on the Postal Savings Bank of China’s $7.6 billion IPO, the largest equity deal of the year and the largest IPO since the 2014 deal for Alibaba, in which J.P. Morgan acted as global coordinator. That 2016 deal underscored once again our ability to execute large transactions around the world by connecting regional issuers with global investors.
In order to grow, clients have often searched for merger and acquisition (M&A) opportunities to transform their companies. They look to trusted advisors who understand their companies and sectors and can provide the strategic insights to help them expand.
Our global team of M&A bankers works together to coordinate quickly and often, enabling J.P. Morgan to identify timely trends and opportunities across industries and borders. After record M&A volume in 2015, overall activity was down in 2016, but J.P. Morgan advised on more deals than any other bank and ranked #2 in wallet share globally. The firm’s North America M&A wallet share grew by 60 basis points since the end of 2015.
Having top franchises across M&A, debt and equity gives us real-time, global market insights. Windows of opportunity in both M&A and capital markets can open and close quickly. Having expertise across product areas allows us to be timely and provide our clients with the best solutions to further their growth strategies. That’s how we build trust.
Our Investment Banking franchise also enjoys a strong partnership with Commercial Banking (CB) that sets us apart from all other competitors. Its Commercial and Industrial franchise is a leading bank to nearly 18,000 clients. As those businesses grow and flourish, many need capital and advisory services from the Corporate & Investment Bank.
In 2016, the CIB led more than 800 capital markets transactions for CB clients and generated a record $2.3 billion of gross investment banking revenue. Despite that already impressive pipeline of shared client business, we think the potential magnitude over time could reach $3 billion.
Another developing partnership for the CIB is the potential to work with J.P. Morgan Asset & Wealth Management and its client base of family offices. We think there is more opportunity to offer these large investors participation in CIB transactions relevant to their investment goals.
Investments and scale in the global markets
We believe that having global scale, a complete platform and operational excellence are essential to having a best-in-class, profitable franchise. In 2016, our Markets business (Fixed Income and Equities) finished the year with a combined $21.0 billion in revenue, a year-over-year increase of 15%.
We have always believed that providing clients with a global and diverse Markets business leads to a higher and more resilient ROE. In 2016, each one of our major Fixed Income businesses produced a ROE above the cost of capital. More important, the marginal contribution that each business provides to the larger Fixed Income franchise is much greater. The costs to run our Markets business are mostly fixed so operating leverage gives us upside when market growth occurs, which is what we saw last year. Even Commodities, which didn’t meet its cost of capital in 2015, in part because of ongoing simplification efforts, produced a good return in 2016.
Since 2010, the Fixed Income industry revenue pool has contracted from $157 billion to $114 billion. However, because of our scale, continuous investments and risk discipline, we were able to increase our market share over the seven-year period from 8.6% to 12.0%.
Our Equities and Prime Services businesses, major areas of focus for us, also gained share during that seven-year period. Our market share increased from 6.9% to 10.1%, and we are now ranked #2, even as the global wallet declined by $6 billion during that stretch. We had record revenue and balances in prime brokerage last year. It’s an area where we committed to invest in order to complete our platform, and the progress is evident across all segments. In fact, since 2014, we have grown synthetic revenue by 48% and cash revenue by 12% within our prime brokerage business, bringing the two segments more into balance. Our leading equity derivatives franchise grew revenue by 26% even while the industry revenue pool shrunk by 5%.
We’ve also made great strides in cash equities. No doubt about it, we were late to the game when it came to investing in low-touch, electronic trading about a decade ago. But by taking advantage of our profitability and committing ourselves to significant, ongoing technology investments, we now are a leading equities franchise and are driving the changes of tomorrow. Between 2014 and 2016, the overall cash equities industry revenue pool fell by 18%, yet our revenue decreased by only 4%, helped by a 31% jump in low-touch revenue. The technology investments we made helped preserve our share in a declining market and positioned us for growth as we continue to onboard clients faster and build best-in-class electronic trading tools.
We are proud to be a perennial leader in Fixed Income and pleased with the progress we’ve made in Equities, but there is still more to do. Across the Markets businesses, we track 31 subproduct and geographic categories. In 2012, we held a top three leadership position in 61% of those categories. In 2016, we improved our standing by having a top three leadership position in 77% of those same categories. The bulk of those leadership improvements came from investments we made in Asia, where we have completed or enhanced some pieces of our global platform.
We feel very good about our Markets business. Global scale and a complete platform have never been more critical. We have many competitive advantages in Markets, but it is essential we continue to invest and proactively think about disruption on our own terms.
Adapting to the new market structure
Technology is rapidly reshaping the Markets landscape, positively altering how our clients trade and how we communicate with them. As the technology advances, we have the resources and the will to embrace behavioral shifts and build offerings around them. We fundamentally believe that clients should have the ability to choose how they want to trade with us rather than be constrained by the technologies we, or they, happen to have. Our Markets Execution group is dedicated to making sure clients can seamlessly and confidently engage with us anytime, anywhere, now and in the future.
Whether it was the U.K.’s referendum to exit the EU, the results of the U.S. presidential election or the uncertainty of China’s growth rate, the CIB’s technology, our scale and operational excellence enabled clients to trade through turbulent markets. In the case of the U.K. referendum, as results were tallied, J.P. Morgan smoothly handled record volume in currency trading, at one point processing 1,000 tickets per second as investors scrambled and adjusted their positions around the world.
While impressive, years of technology investments and proper risk discipline prepared us for an event such as the U.K. referendum. Our profitable Markets business, which generated an overall ROE of 17% last year, enables us to invest in innovation and the client experience. Eighty-three percent of notional FX trading is now done electronically. We have seen a $100 million trade done on a mobile phone, and on peak days in 2016, $200 billion in FX was traded through our electronic channels, including our own J.P. Morgan Markets platform, which provides a range of services from research to pre- and post-trade reporting.
The electronic evolution is advancing, and the investments we’ve made, and will continue to make, already are proving their merit to our clients.
Transforming transaction banking
Our commitment to technological advancement also has helped us make significant progress in Treasury Services (TS) and Custody & Fund Services (CFS). As businesses that provide vital services to clients, both have benefited from the extensive resources we’ve allocated to them.
To give a sense of the scale and importance of these two franchises, we hold and protect more than $20 trillion in assets under custody and securely process $5 trillion in payments every day.
Global companies know how vital these functions are in terms of safeguarding their financial operations and enabling their businesses to run smoothly.
Clients of both Treasury Services and Custody & Fund Services increasingly demand real-time access to their balances, intraday liquidity and ever faster processing capabilities. They are turning to us to deliver innovative products, alert them to fraudulent transactions, and track their finances across multiple currencies and countries. The goal is to give clients real-time information on their complex, global portfolios with easy-to-use, seamless technology.
Clients look to these critical services to be faster and more accessible than ever before, which is why we have invested so heavily in these businesses.
There’s more to do, but our efforts haven’t gone unnoticed. Greenwich Associates recently named J.P. Morgan’s ACCESS OnlineSM the top-ranking cash management portal globally, as well as in North America.
Our commitment to technology and delivery of innovative solutions were also important factors behind BlackRock’s decision to award us a CFS mandate with $1.3 trillion in assets under management last year, the biggest custody transaction in history. Clients are rewarding us with new and incremental business; the bank has increased business with existing custody clients by 10% in 2016, and the forward pipeline is strong. Overall, the bank serves about 2,500 custody clients in more than 100 markets. The faith that clients have in our capabilities is a validation of our investments and reflects our ability to collaborate across areas, such as Sales, Products, Technology and Operations.
By 2017, TS is expected to increase its technology budget by 12% vs. 2014 with investments that include automating and streamlining the account opening process, digitizing document exchanges and expanding virtual branches. We’re also continually investing in cybersecurity capabilities to guard against fraud, malevolent attacks on our operations and other intrusions. We believe that by 2017, these improvements will help reduce operating expenses by 13% vs. 2014, while client operating balances jumped by 15% in just the last two years.
Similarly, Custody & Fund Services will increase its technology budget by 30% vs. 2014 while driving down operating expenses by 12%. Using technology-driven solutions, CFS is enhancing its stability and enabling the business to grow in a more scalable way.
After a few years of tightening controls and upgrading systems, we are now winning more business and attracting talented bankers and technologists who are excited about our willingness to invest in and build new technologies.
Building for the future
We view last year as a transitional period in the financial markets. If the global economy continues improving, that should have a positive impact on client activity and gross domestic product (GDP) growth in the U.S. and in many of the developed and emerging market economies.
Estimates are that emerging markets ultimately will account for 70% of future GDP growth compared with its present share of worldwide GDP of 40%. If and when that shift occurs, J.P. Morgan will be prepared to serve the next generation of multinationals and to foster their development through the financing capabilities that we are uniquely able to offer.
We will continue to build new products and make it easier for clients to work with us, from onboarding to day-to-day trading and through the simplification of our processes. We have great assets, and no other bank is better positioned to deliver them to the global corporations of today or the ones sure to come into being in the next decades. But whether they’re long-established multinationals or startups looking to gain their own foothold in the global markets, we will never forget that they are at the center of what we do.
CEO, Corporate & Investment Bank
2016 Highlights and Accomplishments
- The CIB had record earnings of $10.8 billion on $35.2 billion of revenue, producing an Roe of 16% on a capital base of $64 billion.
- We retained our #1 ranking in global Investment Banking fees with an 8.1% market share, according to Dealogic.
- The CIB had $19 billion of expenses, down $2.8 billion since 2014.
- The CIB continued investing to embrace technology in order to offer clients a broader array of trading platforms in which to transact with J.P. Morgan.
- The CIB’s leadership and role as a trusted partner to our clients helped drive the firm’s total merger and acquisition share to 8.6%, up from 6.4% in 2012, a gain of more than 200 basis points.
- In our Markets business, despite a significantly smaller industry revenue pool compared with 2010, the CIB’s Fixed income market share rose to 12.0% in 2016, up from 8.6% during the same time frame.
- The Treasury Services business supports approximately 80% of the global Fortune 500, including the world’s top 25 banks, and handles $5 trillion in payments per day.
- Custody & Fund Services has more than $20 trillion in assets under custody; during the past year, it increased business with existing clients by 10%.