JPMorgan Chase & Co. on Friday announced a record $9.3 billion payday for its investment-banking employees, setting the stage for competitors like Goldman Sachs Group Inc. to also make eye-popping payouts.
On a per employee basis, JPMorgan investment bankers, sales staff and traders, on average, are set to make about $379,000 for 2009, up more than $100,000 from 2008, when the broader financial sector was mired in crisis.
"People looking at it from the outside look at the dollars and say they are high," said Kenneth Raskin, the head of law firm White & Case's executive compensation practice. "There is no question the dollars are high. The question is whether they were deserving."
JPMorgan Chase & Co. also reported its profit rose more than four-fold to $3.28 billion in the last three months of 2009, but the results released Friday were tempered by rising loan losses at its consumer bank. Its shares fell almost 2 percent in afternoon trading.
The bank had a sobering assessment of the economy, warning that it cannot say it has seen defaults on mortgages and other loans peak. Its earnings came on profits from its investment banking and asset management businesses, which thrived amid the now 10-month-old market rally. JPMorgan Chase earned $702 million a year earlier when the near-collapse of the mortgage banking business forced it to write down the value of billions of dollars in loans.
Return to profitOver the past year, record-low interest rates have allowed banking companies to profit when lending money at higher rates. And the boom in the financial markets have brought in billions of dollars in trading and underwriting revenue that were decimated a year earlier by the stock market crash.
Investors were disappointed, however, probably because the company didn't raise its 5 cents per share quarterly dividend, as the market had hoped.
With the rebound in profitability, JPMorgan Chase increased its pay packages for its workers, even as furor over banking bonuses has grown.
Michael Cavanagh, JPMorgan's chief financial officer, told reporters that even though pay is up overall, its investment bank still reduced the percentage of revenue that it set aside for pay, to 33 percent, from 62 percent for 2008 and historical averages of about 44 percent. Its investment bank had one of its strongest years.
Median U.S. household income in 2008 was $50,303.
Analysts also expect Goldman Sachs Group Inc. and Morgan Stanley, which report their results next week, to show an upswing in pay. Citigroup Inc., however, could pay commercial and investment banking bonuses for 2009 that are similar to 2008 levels, sources told Reuters.
Big banks have faced outrage from politicians who are upset with the lavish pay for companies that helped push the country into recession and received billions in bailout funds. JPMorgan Chase received $25 billion in bailout money in the fall of 2008 at the peak of the credit crisis. It paid back that money in the middle of 2009 when it was first able to do so.
During a conference call with the media, Cavanagh also said the bank's outlook on losses from failed loans still hasn't changed, nor has its view of the economy. Cavanagh said the bank is not able to say "we've hit a peak in reserving" funds to cover those losses.
JPMorgan Chase remains cautious about the potential for a second downturn to the overall economy; he said the bank is unsure whether some early signs of stabilization in home-loan delinquencies are just temporary.
Cavanaugh also said credit card losses were rising, but that had been expected. JPMorgan Chase lost $306 million during the fourth quarter in its credit card services business, and Cavanagh predicted losses will remain elevated in the first half of 2010.
The bank hopes to have a better grasp of losses and the strength of an economic recovery by the middle of the year, Cavanagh said.
The bank's total revenue fell below expectations, and that may also have troubled investors early Friday. JPMorgan Chase had $25.24 billion in revenue on a managed basis, which excludes certain items such as the effect of packaging and selling pools of credit card debt. Analysts predicted JPMorgan Chase would generate $26.8 billion in revenue.
JPMorgan Chase earned $1.9 billion in its investment banking division, while its asset management division generated $424 million in net income.
Fees from underwriting debt and stock offerings continue to surge in the fourth quarter.
Debt underwriting fees jumped 58 percent to $732 million from the same quarter a year earlier, while stock underwriting fees climbed 66 percent to $549 million.