The real reason Morgan Stanley is paying deferred cash bonuses?

Morgan Stanley has allegedly opted for a strange and slightly unusual method of paying bonuses this year. According to various headhunters most of its deferral is in cash, with payments made in tranches over the next 18 months.

Why is this - particularly as Morgan Stanley has had a well-established equity plan in the past?

Market rumour has it, that the cash deferrals are related to the structure of the Mitsubishi UFJ deal reached in 2008.

At that time, Mitsubishi paid $9bn for a 21% stake in Morgan Stanley.

However, it's the details of the deal that are said to be significant.

Mitsubishi's payment included $6bn in 'perpetual noncumulative convertible preferred stock' with a 10% dividend and a conversion price of $31.25 a share.

Morgan Stanley is allegedly and understandably keen to reach that target and escape the 10% dividend charge.

Yesterday, its stock was $30.99, meaning the $31.25 target is in sight. In the circumstances, the bank may have decided that the dilutive effects of issuing a whole load more stock to pay bonuses were best avoided.

"The theory is that paying too much stock to staff would suppress the share price," alleges one headhunter. "If the share price stays buoyant, there's a chance it will go above the threshold and the dividend won't need to be paid."