Morgan Stanley can pay more now that it's not spending $200m on severance
Morgan Stanley is the latest in the procession of US investment banks reporting second quarter results, and in the institutional securities business that houses its bankers and markets professionals it's performed moderately well relative to its US peers.
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As the chart below shows, revenues in Morgan Stanley's equity and debt capital markets businesses increased by 56% and 71% respectively year-on-year in the second quarter. This was more than the comparative increases at Citi, Goldman and Bank of America in ECM and more than JPM, Goldman and BofA in DCM.
In M&A and sales and trading, Morgan Stanley's revenue growth looks more moderate, but wasn't exactly bad. Net income in the institutional securities unit doubled compared to the year before.
At first sight, Morgan Stanley doesn't appear to be sharing the benefits of its strong quarter with its employees. Profits in the division doubled in Q2 and yet spending on compensation and benefits in institutional securities rose only 2% year-on-year. In the first half as a whole, net income in institutional securities was up nearly 40% and yet compensation spending was up only 1%.
Before Morgan Stanley staff complain too bitterly, though, it's worth bearing in mind that this time last year, Morgan Stanley had just cut 3,500 people and spent $207m on severance payments for people in the institutional securities division. This year, Morgan Stanley hasn't been conspicuously cutting thousands of people, and so hasn't had to spend hundreds of millions easing their passage onto the street. The bank itself points this out in its Q2 results release.
Therefore, although Morgan Stanley looks parsimonious, it actually increased compensation spending in the institutional securities business by 13% year-on-year in the second quarter.
It's easier to be generous when you're not paying people to go away.
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