Bloomberg News

Morgan Stanley Boosts Investment Bank Pay to $5.74 Billion

October 19, 2011

(Updates to exclude debt-valuation gains from revenue in second paragraph.)

Oct. 19 (Bloomberg) -- Morgan Stanley raised compensation at its investment banking division 8 percent to $5.74 billion this year through September, even as the unit’s performance suffered amid market turmoil.

The institutional-securities unit, which handles trading, underwriting and merger advice, generated $12.4 billion in revenue this year through September, excluding accounting gains related to the drop in Morgan Stanley’s bonds and a loss in a Japanese joint venture. That was down from $12.7 billion on a comparable basis a year earlier.

The cost of salaries, bonuses and benefits for traders and bankers in the unit amounted to 46 percent of that revenue, up from 42 percent in the first nine months of 2010, according to figures posted on the New York-based firm’s website. Without adjusting for the Japanese loss and the so-called debt-valuation adjustments, or DVAs, the ratio fell to 38 percent from 42 percent, the company said.

The firm “is ensuring that we can appropriately compensate those who are delivering returns for the franchise, while balancing what we need to do to deliver returns for shareholders,” Chief Financial Officer Ruth Porat said on a conference call with analysts about the firm’s earnings today.

Morgan Stanley’s investment banking unit set aside 31 percent less in the third quarter than in the previous three months, joining rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co.’s investment bank in seeking to cut costs.

Brokerage Pay

Companywide compensation and benefits rose 6 percent to $12.7 billion. That was enough to pay each of the firm’s 62,648 employees $202,608 for the nine months, up from the $190,681 it set aside for each of the 62,864 employees at the end of September of 2010, the bank’s figures show. The firm doesn’t report how many people work in institutional securities.

Morgan Stanley’s brokerage division, which employed 17,291 financial advisers at the end of September, down from 18,119 a year earlier, set aside $6.28 billion for pay in the nine months, 7 percent higher than a year earlier. The unit’s compensation cost, which is set by a fixed grid for many employees, was 62 percent of its revenue for the nine months, down from 63 percent last year.

“There’s not a lot they can do on the wealth management side because of some of the contracts, but the investment banking side is proving to be a more flexible place for controlling comp,” Charles Peabody, an analyst at Portales Partners LLC in New York, said today on Bloomberg Television’s “Inside Track.”

Goldman, JPMorgan

Goldman Sachs said yesterday it set aside $10 billion to pay employees in this year’s first nine months, down 24 percent from the same period last year as revenue slid 25 percent. That was equivalent to $292,836 for each of the company’s 34,200 workers as of Sept. 30. A year earlier Goldman Sachs employed 35,400 people, who shared about $13.1 billion, or $370,706 each, for the nine-month period.

JPMorgan, the biggest U.S. bank by assets, reported last week that it reduced its investment bank’s workforce by almost 4 percent in the third quarter and cut employee compensation costs 28 percent. The investment bank’s compensation expense was enough to give each of the division’s employees $289,611 for the nine-month period.

The average compensation figures are derived by dividing the overall compensation pool by the number of employees, and they don’t represent individual workers’ actual pay. Investment banks set aside revenue throughout the year for pay and typically decide bonuses at year-end.

Mitsubishi UFJ Morgan Stanley Securities Co., one of two Japanese joint ventures between the two banks and the one Mitsubishi UFJ Financial Group Inc. controls, posted a loss in the first quarter on wrong-way fixed-income bets that cost Morgan Stanley $655 million. The firm said at the time it was excluding the loss from pay decisions.

--With assistance from Erik Schatzker in New York. Editor: David Scheer, Dan Kraut.

To contact the reporter on this story: Michael J. Moore in New York at Christine Harper in New York at

To contact the editor responsible for this story: David Scheer at

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