JPMorgan?s global CEO talks Asia

JPMorgan co-chief executive Donald Layton gave a speech and answered questions at the American Club in Hong Kong.

“Asia has been a tremendous investment for us,” was the message JPMorgan’s co-chief executive, Donald Layton delivered in Hong Kong on Friday. “We believe that despite its volatility it is a high growth rate area. That’s why we have 8500 people in the region.”

He noted the firm has faced a change of leadership in the region, with Asia chairman Anthony Leung becoming Hong Kong’s financial secretary. However, he was philosophical about this.

“I got a call from Anthony one night to say he’d been approached to be the financial secretary. I get a lot of calls from people who say they are going to competitors. I have arguments for why they shouldn’t. I get phone calls from people who want to give it up and go back to the farm. I have arguments for those people too.

“However, I have to admit, I didn’t know what to say when someone said I am going into public service, and by the way, I am going to be your regulator. So I said, yes. It’s a tremendous loss for us. We will miss him.”

However, he said, it wouldn’t stop the mighty JPMorgan machine from growing in the region.

 “We are the most global of any of the major American firms,” he added. “Almost 50% of our revenue comes from outside of the United States. That is an extremely high percentage.”

He also added that JPMorgan now had clear leadership positions (meaning it is one, two or three globally) in syndicated lending, foreign exchange, cash management, institutional trust, derivatives, global custody, private banking (number two in the world, he said, by assets under management), and private equity.

He said that leaves three other products: bonds, M&A and equity. “That’s where the power of the merger will push us into the top three. That’s where I’d ask you to ‘watch this space’!

“Are we going to conquer these three other leadership positions? If we do we will have a clean sweep, and no one will come close to us.

“In M&A we were number six last year [globally]. In the first quarter of this year we were number three. That does not mean we have conquered a leadership position. But it is a good start. With the global client base we have, and all our related products, we’ll get there.

“The bond division doesn’t have a single league table. It comprises lots of components. We’ve found we’re top three in about 60-70% of them. In US investment grade bonds we’re the number two lead manager in the first quarter. That surprises a lot of people – especially as that was the core of the Glass-Steagall protection given to Wall Street firms. And in Latin America we have an unbelievable leadership position.

“In Euro-denominated bonds we were 11th last year – making us almost a nobody. In the first quarter of this year we were number five.

“Equities is the biggest challenge and the toughest business for outsiders to burst into. That’s not going to be the instant success the others seem to be. But we are long-term confident, and know we can hire quality people. It is our priority.

“In Asia, the purchase of Jardine Fleming gave us a tremendous equities capability.”

When FinanceAsia asked what percentage of global revenues should come from non-Japan Asia, now and in 10 years time, he replied: “The answer is that, in the first quarter, around 10% of investment bank revenues came from Asia. We don’t have a specific target for 10 years, but we expect it to slowly move up because we expect the growth rate in Asia to be higher than that in the US.”

In answer to another question, Layton said the ideal merger target for the firm would be a global equities boutique – but that no such firm existed, so JPMorgan would grow its equities business organically.

But, what asked FinanceAsia, about Japan? Would JPMorgan consider buying a Japanese broker? “A lot of our staff have asked this question too,” he quipped. “However, if we buy a broker in Japan, we are really buying a fundamentally retail operation. It has branches and small customers.

“We are not a material retail equity broker globally. We have no systems to put in, we have no global research product to put in, or 50 people to send in with expertise in this area. If you are Merrill Lynch or Salomon Smith Barney it may make sense. But not for us.”

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