We're only four months into 2018, but if you're of an optimistic disposition you will be feeling good about this year already. Banking is an industry in which pay is aligned to revenues. And in 2018, revenues in investment banks are (so far) growing.
Morgan Stanley is the latest bank to report its results for the first quarter. Revenues in the Institutional Securities division (investment banking operations and sales and trading activities) were up 18% year-on-year in the three months from January. Compensation spending was up by a nearly-matching 16%. Morgan Stanley said higher spending on pay was, "driven by higher revenues."
MS isn't the only one splashing out on staff. As we reported yesterday, Goldman Sachs increased spending on compensation by 25% year-on-year in the first quarter, and added 3,200 staff in the 12 months to March. On a per head basis, pay per Goldman employee rose 14% to $110k, its highest level in the first quarter since 2015. At J.P. Morgan's corporate and investment bank, compensation spending rose 52% between the fourth quarter and the first quarter, and 5% year-on-year.
At nearly $2.2bn in the first quarter, Morgan Stanley's expenditure on compensation in its Institutional Securities division is now 56% more than it was two years ago, in the first quarter of 2016. First quarter compensation spending in the division hasn't been this high since 2010.
Of course, it may not last. And Morgan Stanley doesn't break out headcount in its institutional securities division, so it's quite possible that increased compensation spending is the result of higher headcount and won't flow through to individuals. For the moment, however, banks are sounding positive about 2018. As at other banks, equities revenues were particularly strong at Morgan Stanley in the first quarter, with the bank citing, "strong performance across products and regions on higher levels of client activity." In fixed income, the bank said FX and commodities did well, credit and rates less so. Morgan Stanley's stand-out performance was in the investment banking division, though, and particularly in M&A. While M&A revenues declined 29% year-on-year at Bank of America and 22% at Goldman Sachs, with Goldman blaming a lack of completed deals, Morgan Stanley's M&A revenues rose 16%, reflecting what the bank said was, "the impact of higher M&A fee realizations."
For the moment, then, Morgan Stanley's M&A bankers seem to be at the front of the pay queue.
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