Morgan Stanley's profits are up 52% in the investment bank. Pay is up 4%

Following JPMorgan, Citi, Goldman and Bank of America, Morgan Stanley today announced its third quarter results. They look great if you're a shareholder. They seem less good if you're an employee. 

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As the charts below show, Morgan Stanley's investment bankers and equities traders are having a fine time. In the third quarter, its debt capital markets bankers alone managed a 120% year-on-year increase in revenues. Equities trading revenues rose 21%, spurred partly by the volatility in Asia. Equity capital markets revenue were up 53% thanks to "higher IPOs, follow-ons and blocks," again particularly in Asia. Fixed income trading revenues were more feeble, but beat estimates, according to Bloomberg. Unlike other banks, Morgan Stanley said its rates business did particularly well. 

The third quarter revenue increases in Morgan Stanley's institutional securities division (investment bank) contributed to revenue increases for the first nine months of 2024. Revenues helped drive profits. In the first nine months of this year, net income in the institutional securities business was up 52% versus the same period last year. 

It might be supposed that Morgan Stanley might use this windfall to increase pay. Or not. While profits in Morgan Stanley's institutional securities division were up 52%, spending on compensation was up....4%.

This might understate the bank's generosity. As we noted the last time Morgan Stanley reported, the bank isn't paying $200m on severance in 2024. Given that severance spending is included in the compensation line, this implies that $200m more is going to current employees, along with the $268m increase in top-line compensation spending in 2024. When this is factored in, the implication is that compensation spending at Morgan Stanley's investment bank is actually up 13% on last year. This is better, but revenues are still being steered towards shareholders, and some of the 13% increase is due to the accounting treatment of deferred bonuses. 

Morgan Stanley said today that it's focused on "disciplined expense management." CFO Sharon Yeshaya said the bank is engaged in a "multi-year process" and is thinking carefully about "efficiency," which includes cutting the use of consultants. 

Morgan Stanley doesn't break out headcount in its investment bank.  Last year it cut 3,500 people across the bank, implying that this year's extra compensation spending will be less thinly spread. 

Yeshaya said the bank remains convinced that its in the "early stages" of a multiyear capital markets recovery. CEO Ted Pick said Morgan Stanley is investing across its businesses, including the investment bank. 

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