JPMorgan pares cash equities unit


There once was a day when working as an equities trader was really cool. But over the years, as the margins on equities trading dwindled and as margins on other securities soared, the job lost some of it cachet.

The much more lucrative sales and trading jobs shifted to other units in investment banks. Much of this owes to market structure changes over the past decade or so. The push for the structure we have now was driven by the notion that lower commissions and tighter spreads are worthy goals, and that crimped margins. The rise of hands-off, technology driven trading has played a big role as well.

So it's not surprising that, as Bloomberg notes, JPMorgan Chase's equities unit dismissed about two dozen U.S. traders and sales staff and cut pay 4 percent to "more closely align it with revenue after the industry's worst year for stock trading since 2008." The bank also recently pared back on equity analysts in the United States.

Revenue from the equities unit fell 1.8 percent to $4.4 billion last year, compared with a 4 percent gain in fixed-income revenue to $15.4 billion.

This is not merely a JPMorgan Chase issue. All banks are feeling this. Equities sales and trading revenue was said fell 5 percent across the globe from 2011, the third-straight year of decline, according to data from Coalition.

While some think we're at the beginning of a "Great Rotation," which will give rise to a surge in equities investment at the expense of fixed-income investment, not everyone buys that concept. Even if such a rotation were to get underway, it may be that the margins from cash equities are so low that the resulting revenue gains would be much lower than the volume gains. Equities may not again become a hiring center for a long time.

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