Zero bonuses adding to woe in Morgan Stanley's fixed income business

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Morgan Stanley has said it has no intention of giving up on its fixed income sales and trading business, but headhunters say plenty of Morgan Stanley's fixed income salespeople and traders would like to give up on Morgan Stanley.

"We've spoken to a lot of people on Morgan Stanley's rates team and they are horrifically depressed," said the head of one fixed income search firm in London. "The European rates business actually made some money last year, but at least 25% of them were zeroed."

"People at Morgan Stanley's fixed income business are very keen to get out," said the head of fixed income at another search firm. "The trouble is, there are no bids for them."

Morgan Stanley didn't return a request for comment.

It was reported earlier this month that Morgan Stanley would be deferring 100% of bonuses over $50k for people earning more than $350k in total compensation. Morgan Stanley is in the process of making redundancies, which are expected to hit its fixed income business disproportionately. The bank has also increased its target for cutting risk-weighted assets (RWAs) to $35bn by the end of this year with another $55bn to go by the end of 2016. Whilst cutting RWAs, it intends to increase its fixed income market share - a seemingly contradictory strategy according to analysts at Sanford Bernstein.

In the investor call accompanying Morgan Stanley's fourth quarter results, CFO Ruth Porat said Morgan Stanley's fixed income business experienced a sequential quarterly drop in revenues in the fourth quarter both as the rates business declined and as Hurricane Sandy hit the physical commodities trading business.

Overall, headhunters say 2013 bonuses at US banks are down, but not significantly. "Generally, bonuses at US banks are down 17-20%," said Lee Thacker at search firm Silvermine Partners. "Most US banks have kept their standard bonus deferral programmes and pay 33% a year over three years above a certain threshold," he added.

"The trend in previous years has been for US banks to pay bonuses over a shorter timescale and to defer less than European banks," said Alex Tracey at CP Search. "We expect that continue and for the dichotomy between the well paid and the not so well paid to widen." Deutsche Bank is deferring managing director's bonuses for five years this year and Credit Suisse is clawing back cash bonuses over a three year period.

The good news is that our calculations suggest Morgan Stanley bankers who got large bonuses will receive 40% of them this year. Nevertheless, headhunters say Morgan Stanley's bankers are far less happy about their bonuses than their rivals at Goldman Sachs, who appear to have received a large proportion of this year's payment in cash. Similarly, JPMorgan's London fixed income bankers were 'grinning like Cheshire cats,' said one headhunter.

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