Morgan Stanley and the bonus surprise

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Which U.S. investment bank has paid the best bonuses this year? The answer is always going to be entirely anecdotal as U.S. banks don't disclose their global bonus pots, but for the moment it sounds a lot like the most impressive bonuses have been handed out at...Morgan Stanley.

We spoke to five London headhunters about this year's bonus season - each of them off the record. Four of them said the same thing: the standout performer in this year's bonus round was Morgan Stanley, and that bankers them seem disproportionately happy with their lots.

Banks don't talk about bonuses, and Morgan Stanley is no exception - it declined to comment for this article. The bank's apparent generosity is a surprise given Morgan Stanley's underperformance in the fourth quarter.  As the chart below shows, the bank was one of the worst performers in fixed income in Q4 (relative to Q4 2017). For the year as a whole, however, Morgan Stanley's investment bank didn't do too badly relative to the rest.

It's still early days (MS bonuses were only announced in recent weeks) and disgruntled employees may yet emerge from the woodwork. For the moment though, a senior equities headhunter tells us the bank was "top of the class" in terms of equities pay (cash and derivatives), and M&A headhunters say investment bankers there also appear unusually happy. It probably helps, suggests one, that Morgan Stanley lost various expensive managing directors like Kama Jabre in 2017 and took its time to replace them. The EMEA bonus investment banking division (IBD) pot was less thinly spread.

What about fixed income, where revenues fell 30% in the fourth quarter and seemingly triggered Morgan Stanley's 27% reduction in compensation payments in the institutional securities division (investment bank) compared to Q4 2017? Here headhunters say things appear to have been a little less shiny, with credit bonuses down around 10% on average and some people seeing cuts of more than that. One macro headhunter said rates bonuses at the bank were, "challenged".

On the whole, however, even fixed income professionals at Morgan Stanley are said to be happy. It helps that last year's payments weren't always great: "The bonuses last year weren't that strong in fixed income, so it's been easier for Morgan Stanley to pay comparatively well this year," says one credit headhunter (speaking off the record).

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