If you were having doubts that the era of high-paying, free-wheeling, hot-trotting, big-swinging investment bankers is over, Morgan Stanley is here to suppress them.
The US investment bank has just turned in a set of exemplary first quarter results. M&A revenues are up year-on-year, ECM revenues are up year-on-year, equity sales and trading revenues are up year-on-year. And - most impressively given the dire performances of all its rivals - fixed income currencies and commodities (FICC) revenues are up 35% year-on-year.
As a result of all this, Morgan Stanley's institutional securities business (the investment bank) has managed to put in an impressive 55% increase in first quarter profits. In the old days, this might have filtered down to its hard working employees. Not any more. Even while profits at Morgan Stanley's investment bank rose by more than half, spending on pay at Morgan Stanley's investment bank fell by 2% and the proportion of revenues attributed to compensation dropped from 46% to 40%. Investment bankers are no longer receiving the fruits of their labours.
Morgan Stanley is showing the way forward and not just in terms of pay. Simon Maughan, head of the product specialist group at OTAS Technologies, says the house of Gorman has already taken the difficult decisions about its fixed income business.
"A few years ago, both UBS and Morgan Stanley were under extreme pressure in fixed income sales and trading," says Maughan. "UBS took the decision to get out and Morgan Stanley decided to restructure and focus on what they're good at. UBS has restructured and is thriving and Morgan Stanley has pared back to what it's best at and can now grow from there."
Morgan Stanley's 35% increase in fixed income revenues came despite a reduction in risk taking in the last quarter. Credit Suisse revealed yesterday that its fixed income revenues had fallen more than 20% and that its investment banking profits had dropped by more than a third, but that it had increased pay for its investment bankers.
Morgan Stanley is the way forward, says Maughan. Credit Suisse isn't. Morgan Stanley's FICC resurgence suggests Credit Suisse, Barclays and Deutsche all need to make some tough decisions about their FICC businesses. And Morgan Stanley's broader profit resurgence suggests that any bankers who expect to share equally with shareholders in the recovery are sadly mistaken.