Pin it on James Gorman’s consulting background, or maybe Morgan Stanley is practising what it preaches, but the bank’s securities division has posted another impressive quarter, headcount across the bank has continued to increase and yet, pay is still declining.
Fees from Morgan Stanley’s investment banking functions have reached a three-year high in the second quarter, with revenues jumping by 33% on the same period in 2013, with M&A, equity capital markets and fixed income underwriting all posting solid gains on last year.
Its equity trading division’s $1.8bn in revenues was largely unchanged from last year and even FICC revenues slipped by 13% on 2013 to $1bn. In fact, over the course of the past six months, post-tax income within Morgan Stanley’s investment bank has jumped by 84% on the previous year.
Employees in its institutional securities division should not be expecting a bumper bonus this year, however. Compensation accrued in the second quarter was $1.7bn, a slight decrease on the same period last year when Morgan Stanley paid out $1.8bn. This follows an exemplary first quarter for its investment bank, when compensation remained static at $1.9bn.
It may simply be a case that Morgan Stanley is cutting compensation for its FICC traders – in particular those in FX, which have had a poor Q2 – and rewarding those in advisory functions. However, it also suggests that the bank is continuing its prudence over pay after keeping bonuses relatively diminutive over the past two years.
Morgan Stanley has been hiring – globally headcount rose to 56,142, or around 530 more than at the same point last year. It doesn’t breakout staff numbers by division, so this increase could simply be down to a continuation of the trend to hire for its U.S wealth management division.
The bank is, however, reported to have laid off more fixed income traders in the past month, in FX and rates, although the cuts were not significant. One positive for Morgan Stanley’s FICC team is that its credit trading team and securitised products helped offset the decline in FX and rates.
Following glowing overtures about the future of asset management by James Gorman last week, Morgan Stanley’s investment management division posted a 3% uptick in revenues on Q2 2013. However, compensation has been cut here too, from $297m last year to $291m in 2014.
The only division where Morgan Stanley still seems willing to pay for performance is wealth management – it spent an addition $200m on compensation, taking its costs to $2.2bn. This may be the last front of generosity for its employees, but even here Morgan Stanley is currently trying to come up with ways to pay its advisers less.