A recent development has shown us that JPMorgan Chase & Co. (NYSE:JPM) and Bank of America (NYSE:BAC) are laying off senior mortgage traders and salesmen in the face of declining demand for asset backed securities.
Raphael Gonzalez, co-head of subprime mortgage trading at JP Morgan, and a securitized salesman John Angelica have resigned within the past four weeks after taking severance packages that contained stock awards. Roy Kim, a trader of adjustable-rate mortgages left under similar circumstances earlier this year.
This cost cutting and downsizing of certain departments, particularly subprime mortgage trading, comes after a lack of demand for the securities and pressure to cut costs and retain more free capital on the balance sheets. Not to mention, the pressure from the government to cut the department that was to blame for the 2008 meltdown.
Trading securitized products such as subprime mortgages at the ten largest investment banks in the world, dropped to $10 billion last year from where it stood back in 2010 around $17.5 billion.
In addition to the three executives that left JP Morgan, as stated above, the bank has also cut about 5% of its equity traders and salesmen in New York yesterday. The bank also laid off 100 employees in the treasury and securities services division in the last three months, according to anonymous sources at the bank.
Bank of America has gone a similar route as JP Morgan with laying off half a dozen traders and salesmen in the mortgage department this week alone. John McNiff, the managing director and co-head of the commercial mortgage securities trading unit, resigned recently as well.
McNiff is not the only executive to leave the firm, Seth Jackier and John Eck, managing directors in mortgage sales and asset backed trading, respectfully, also decided to leave Bank of America. Another report leaked from the firm said that Michael Case, director of commercial mortgage security banking and salesmen John Livingstone and Michael Miller have also left the bank.
As you can see, JP Morgan and Bank of America have been cutting executives in the mortgage and trading divisions throughout this year to further strengthen integrity at the bank and to increase cash reserves. It is important to note that both banks passed the Federal Reserve’s stress test which means that both banks would successfully be able to weather a severe recessionary environment. Both banks are positioning themselves for success which should absolutely transfer over to their share prices over the long term.