Are Pay Cuts Coming for Junior Bankers at Morgan Stanley?

James Gorman has spoken, again. Gorman has a predilection for making aggressive statements about investment banking pay, but his statements are usually aimed at high-earning senior bankers. Now, he seems to have taken a pot-shot at juniors.

In a lengthy interview with the Financial Times, Gorman says variously that investment bankers in general are still overpaid, that in these days of lower leverage a 10% return on equity is the kind of thing that one now aspires to, and that Morgan Stanley will be keeping its two year analyst program (unlike Goldman Sachs), but that the program’s participants could find their pay “reduced significantly.”

If you’re an IBD analyst working 100 hour weeks, the prospect of significantly reduced pay may not be too edifying. And yet Morgan Stanley could afford to reduce pay a bit – the recent junior M&A salary and bonus survey from recruiters Dartmouth Partners suggested it was among the best payers in the 2012 analyst bonus round. VPs and MDs at Morgan Stanley may have also their pay cut significantly at the end of this year: when it revealed its poor Q2 results the bank said it had cut compensation for its investment bankers by a disturbing 36%.   

Longer term, Morgan Stanley may not be the only bank cutting pay for its junior bankers. “People are starting to question the value of graduate hires,” said one head of recruitment at our recent breakfast meeting for senior recruiters.

As well as signalling lower pay for all staff, juniors especially, Gorman has flagged further layoffs. “There’s way too much capacity and compensation is way too high,” he says, referring to the industry as a whole.

Morgan Stanley will commence a new round of cost cutting in the new year, Gorman says – just before bonus time.