Morgan Stanley's results suggest this is not a great year for pay
There's a rumor going around Wall Street to the effect that Morgan Stanley has also increased pay for its bankers. Vice presidents at Morgan Stanley in New York are said to be receiving $295k in base salaries, up from what appears to have been a ceiling of $250k previously. However, the alleged salary rise doesn't seem to have hit VPs in London, and Morgan Stanley hasn't confirmed it. If it's happened, it's very new - because there's no sign of higher spending on pay in the bank's newly released results for the second quarter.
Instead, Morgan Stanley's Q2 results show the bank spending 18% less on compensation in its institutional securities unit (its investment bank) in the three months to June than one year previously. This follows a 17% fall in pre-tax profits at the unit over the same period.
The good news is that Morgan Stanley's spending on pay for its bankers and traders was still up by 16% on 2020 for the first half of this year as a whole. However, there are another six months to go before the year-end and if the second quarter trend continues, pay could yet end up down. - Especially for anyone working in Morgan Stanley's fixed income currencies and commodities division, where revenues have been plummeting following the abnormally good conditions last year.
The charts below show the comparative revenue growth at Morgan Stanley and other banks by business line in both the second quarter and the first half (hover for the actual numbers). Compared to rivals, Morgan Stanley hasn't done badly. But it hasn't done well either: it's distinctly middle of the road, except in equity capital markets where it is more special.
If Morgan Stanley bankers and traders are wondering about their compensation today, they are probably not the only ones. JPMorgan's compensation spending in its corporate and investment bank followed a similar pattern: it too fell in the second quarter, but is still up (by 13%) in the whole of the first six months. Citi indicated yesterday that bonus accruals in its investment bank were down the second quarter too.
Bank of America doesn't split out spending on compensation, making it more difficult to decipher precisely what's happening with its pay (although BofA may need to increase bonuses this year following complaints that last year's were unimpressive). The only bank, therefore, that appears to have definitively increased compensation during the first half of 2021 is Goldman Sachs, which splurged a huge 47% more on employees in the first half versus the same period of 2020.
Goldman, too, has time to make amends for this generosity: it's quite possible that bonus accruals at the firm will fall between now and December. This seems particularly possible if Goldman benchmarks its compensation spending to its rivals: at most banks, 2021 doesn't look like a bumper year for pay.