Morgan Stanley's fourth quarter results are out. The story is obfuscated by some big accounting-related Debt Valuation Adjustment (DVA) charges, but mostly it's similar to elsewhere - it was a bad quarter in fixed income currencies and commodities trading and an excellent quarter in equity capital markets. One thing is clear, however: Morgan Stanley's investment bankers are having their pay trimmed, while its asset managers and wealth managers are having their pay hiked.
In 2013 compensation expenditure in Morgan Stanley's Institutional Securities Unit (its investment bank) fell by 2% compared to 2012. At the same time, compensation as a percentage of revenues in the investment bank dropped from 63% to 44%.
Meanwhile, at Morgan Stanley's investment management business compensation rose by a gigantic 41% over the same period, increasing from 38% to 40% of total revenues. In wealth management compensation rose 6% and was 58% of total revenues - the highest compensation ratio across Morgan Stanley's business. Morgan Stanley's investment bankers, who held that accolade previously, are clearly out of favour.
What's going on? Morgan Stanley's investment bankers can blame lawyers for the state of their bonuses. While compensation expenses fell by $200m in 2013, non-compensation expenses in the Institutional Securities Unit rose by $1.9bn - an increase almost entirely attributable to legal costs associated with nefarious securitizations past.
Morgan Stanley may be trying to mollify its investment bankers by pretending to pay them more in cash. Bloomberg reported today that the bank will be paying all cash bonuses up to $50k and that beyond $500k 98% of bonuses will be paid in stock. This looks lenient at the top end where in the past Morgan Stanley reportedly deferred 100% of bonuses above $350k, but it doesn't look so good for Morgan Stanley juniors, for whom bonuses were reportedly paid entirely in cash as recently as 2011.
We don't know how compensation compares on an individual level across Morgan Stanley's businesses - it doesn't break out how many people it employs in each business area - making it impossible to get a handle on average pay per head. Investment Management compensation is increasing from a low base. It totaled just $1.2bn for 2013, versus $6.8bn in Institutional Securities.
Even so, and much as at JPMorgan, asset management looks like the place to be. The return on equity (ROE) in Morgan Stanley's Investment Management Business was 18% last year. In the Institutional Securities business, it was... 3%. From a shareholders' perspective, it's quite clear which set of employees look deserving of higher pay in times to come.