Morgan Stanley’s first quarter results are out. So are Bank of America’s. They tell a tale similar to that of other firms: The quarter was better for sales and trading – especially in fixed income, worse in M&A.
One thing in particular stands out: Morgan Stanley’s fixed income performance. It is good – very good. Excluding DVA, Morgan Stanley’s revenues were up 34 percent year-on-year in the first quarter. Goldman’s FICC revenues were down 17 percent over the same period. Bank of America’s FICC revenues were also up, although less impressively: a mere 11 percent.
In reporting its results, Morgan Stanley said that it had set aside $2.11 billion to pay employees at its investment banking division in the first quarter, 10 percent more than a year earlier.
Revenue at the unit rose 33 percent to $5 billion when the impact of an accounting loss was excluded. Compensation at the institutional securities unit, which includes salaries, bonuses and benefits for traders and bankers, was 42 percent of adjusted revenue, down from 51 percent a year earlier when calculated on the same basis, according to figures posted on the New York-based firm’s Web site. Interestingly, Morgan Stanley has made cuts in compensation, capped cash bonuses at $125,000 and made claw-backs tougher. Chief Executive Officer James Gorman even took a 25 percent pay cut.
To compare compensation to some other firms, Goldman Sachs said it set aside $4.4 billion to compensate 32,400 employees in the first quarter, 16 percent less than a year earlier. That comes out to an average of $135,123 per employee in Q1. Meanwhile, JPMorgan Chase cut their investment banking comp by 12 percent and paid its 25,707 investment banking employees an average of $112,849 for the first three months of the year. Keep in mind that these figures do not really reflect pay among individual investment bankers, whose total comp includes year end bonuses that are not apart of this pool.
Comparing Morgan Stanley's Fixed Income to Goldman's
Morgan Stanley’s performance is all the more exciting in light of a recent note from Glenn Schorr at Nomura. Schorr had argued that Morgan Stanley’s fixed income results would be similar to Goldman’s on the grounds that the two banks have a similar client franchise, and that Citi and J.P. Morgan’s results were superior because they had a lot of corporate customers (Goldman being more focused on hedge funds and asset managers). Apparently not. It’s also worth noting that Morgan Stanley achieved its big revenue gain without taking more risk: like Goldman, it cut VaR 30 percent.
Schorr’s Goldman note (written before BofA and Morgan Stanley reported) includes the following graph noting that J.P. Morgan has been the big winner of fixed income market share since 2009 and that Goldman has been the big loser. Today’s results suggest Morgan Stanley has been a big winner too. In its defense, Goldman predicted its fixed income franchise wouldn’t maintain the gains it made post-crisis. But it may not have foreseen quite such a significant fall from grace.
Bank of America
Bank of America posted a first-quarter profit that was more than most analysts predicted amid a rebound in trading. Profit, excluding certain one-time items increased about 40 percent to $3.7 billion, or 31 cents a diluted share, from $2.6 billion, or 23 cents, a year earlier, based on data released in a statement today. That beat the average per-share estimate of 27 analysts as surveyed by Bloomberg of 12 cents. Net income, which includes accounting charges, fell to $653 million, or 3 cents a share, from $2.05 billion, or 17 cents.
Chief Executive Officer Brian Moynihan had been looking for Thomas Montag's trading units post positive trading revenue. Charles Peabody, an analyst at Portales Partners LLC in New York, said in a Bloomberg Radio interview that "there’s no question the earnings that are being reported are very good – the question is the sustainability.”
In its earnings release, Bank of America said sales and trading revenue excluding accounting adjustments more than doubled to $5.2 billion in the first quarter from $2 billion in the fourth quarter, and advanced from $5 billion a year earlier. The tally for the most recent three months was the third-highest since the takeover of Merrill Lynch in 2009, according to the company. Revenue from fixed income, currency and commodities excluding adjustments rose to $4.1 billion in the first quarter from $1.3 billion in the fourth quarter and $3.7 billion a year earlier, according to the statement.