The headlines regarding Morgan Stanley's quarterly results tell a depressingly similar story every time they come around. The bank's sales people and traders are doing well - but while rivals like Goldman Sachs are increasing pay, Morgan Stanley is cutting it.
True to his word, today's 3Q results at Morgan Stanley reveal that Gorman has indeed curtailed compensation at the investment bank. Spending on pay at Morgan Stanley's institutional securities business fell 9% year-on-year in the first 12 months.
Unfortunately, it may have a lot further to fall.
Taking the influence of DVA into account, Morgan Stanley is still spending 47% of its investment banking revenues on compensation - far more than JPMorgan (34%) or Goldman Sachs (44%). JPMorgan is targeting a 35% compensation ratio long term. For Gorman to follow Dimon, Morgan Stanley's investment bankers would need their pay to fall a further 30% on top of the recent decline.
It's all the more depressing given that some parts of Morgan Stanley's business are doing quite well. Fixed income sales and trading achieved a 40% increase in 3Q revenues when DVA is stripped out. DCM bankers achieved an increase of 103%.
Gorman's real problem is that even while he's frantically cutting compensation costs, costs elsewhere in the bank are still rising. Non-compensation expenses are up 2% so far this year, and they rose 15% last quarter. Again, this is something that Goldman Sachs seems to have under control.
Bank of America is still trading at less than half book value. Either shareholders don’t trust the numbers or they don’t think Moynihan is going to boost earnings above the cost of capital. (Breaking Views)
Morgan Stanley had the lowest first-half return on equity of the 10 largest U.S. lenders and is trading at two-thirds of its liquidation value, compared with 96% at Goldman Sachs. (Bloomberg)
“The rebound in fixed Income and commodities sales and trading indicates that clients have re-engaged after the uncertainty of the rating review in the previous quarter,” James P. Gorman, the firm’s chief executive, said. (DealBook)
ThinkEquity is closing its equities trading business and making 100 people redundant. (Bloomberg)
The investment bank is the real problem at Citigroup. (Financial Times)
Michael Corbat says he’ll remain extremely focused on Citigroup’s efficiency ratio. (Financial Times)
Deputy governor of Bank of England says there’s a ‘tangible probability’ that the worst may still be ahead for banks. Calls again for subordinated debt bonuses. (Telegraph)
RBS chairman says the bank might be privatized before the next election. (Telegraph)
Paul Volcker: The culture of compensation [in trading] infected the culture of banking groups generally. Chief executive pay was also out of control. “The head of a bank used to make 40 or 50 times the average employee. Now it’s 500 times. They take advantage of the complexity [of their operations],” he said. (Financial Times)
Two people are leaving Pierre Flamand’s hedge fund after AUM fell. (Bloomberg)
Profits were flat at Greenhill. (DealBook)
Bob Diamond has swiftly returned to live in the US. (Sky)
Is $250k a middle class income? (MarketWatch)
Proposals for Bridgewater Associates’ new campus in Stamford include a helipad and recreational barge. (Stamford Advocate)
The more people work, the more they overestimate how long they work. (Quartz)
Until extremely recently, you couldn't live, you couldn't survive as a human being without being an endurance athlete. (Edge)