Big Banks Paying Less (Kind of) Despite Richer Revenues

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Wall Street banks like Goldman Sachs and Morgan Stanley couldn’t have drawn it up any better. They each cut their ratio of compensation to revenue during the second quarter – likely appeasing regulators and the general public – all while paying their average employee more money.

Two days following Goldman’s impressive earnings, Morgan Stanley on Thursday reported net income of $980 million for Q2, up 69% from the previous year’s quarter, buoyed by a particularly strong performance from its institutional securities arm. Compensation expenses rose nearly 15% in the quarter – from $3.6 billion to $4.1 billion.

Still, bankers received a smaller piece of the pie, albeit a more lucrative one due to rising revenues. The ratio of compensation to adjusted revenue for Morgan Stanley’s institutional securities unit fell to 43% during the first half of the year, down from 46% in the same period of 2012. It was the same story at Goldman, where the average employee took home nearly $30,000 more during the first half of the year despite a 1 percentage point drop in the comp ratio.

Bankers at the firms likely aren’t complaining – at least not openly – but the mood may change dramatically if revenues drop during the second half of 2013. Morgan Stanley on Thursday reiterated its goal of cutting the compensation ratio further, to 40%.

“We are continuing to focus on expense reduction,” said CFO Ruth Porat. “There's more to do.”

One thing has become clear in 2013. It’s a pretty good time to be a shareholder of a U.S. bank. You’re the priority, and bank stocks are sailing.

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List of the Day: Consulting Advice

If you just got your first consulting gig, do this next.

  1. Network, network, network.
  2. Get your wardrobe and business luggage in order.
  3. Freshen up on Microsoft Office.

(Source: The Daily Muse)

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