Morgan Stanley's James Gorman told analysts the bank’s “ultimate weapon” to manage a slowdown is pay
From the FT
"..The firm (MS) said it had cut pay and bonuses by 16 per cent year-on-year in the division that includes its investment bank. JPMorgan said the equivalent expense line at its corporate and investment bank fell 2 per cent in the second quarter."
"Some teams at Goldman Sachs this summer have stopped taking interns out for team drinks to save money, according to people familiar with the matter. The bank has also paused hiring some replacements for bankers that have left this year.."
"Meanwhile, a few prospective hires at Credit Suisse have been waiting several weeks for their formal offer letters, according to people involved in the hiring process."
Based on earnings thus far, advisory revs have held up while ECM and DCM have seen the sharpest declines.
Are people hearing of any reductions to comp/headcount/spending? Thoughts on the environment for the second half of the year?
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Should 2023 SA have anything to fear? I'll be at MS next summer and not sure if I should worry about everything going on in the economy.
FT recruiting is about to be fun...
The 16% decline is misleading since it includes S&T comp
IB gets a higher portion of revenue as compensation vs. S&T, this can be seen with the publicly traded EB's who allocate ~60% of revenue to comp. MS allocates 35% of total Institutional Securities (IB and S&T) revenue to compensation; for investment banking let's assume it's 50% of revenue. Doing some high level math, 1H22 IB Comp is $1.3bn vs 1H21 IB Comp of $2.5bn, which is a 45% decline. (1H22 IB Revenue is $2.7bn vs 1H21 IB Revenue of $5bn). As a gut check, subtracting out those estimated IB comp figures from total Institutional Securities comp would yield a S&T comp ratio of ~30% for both 1H22 and 1H21, which is in-line with research estimates. Granted, a portion of the compensation line is fixed and the ratio would rise in a declining revenue environment but all in all it's reasonable to assume that the IB comp pool at MS is down at least 30-35%.
Gorman has always been quite clear on prioritizing shareholder returns. Old but still in-line with management's philosophy "At the same time, he has taken an axe to pay and, in 2012, forced senior staff to defer 100 per cent of their bonuses in the quest for better shareholder returns. “If you underperform for your owners, eventually they pick up their bat and ball and go home,” he says. “If you’re not profitable, it was unacceptable to have the option to say: when we make money, we’ll pay ourselves well, and when we don’t make money, we’ll pay ourselves well to keep people. We had lost the right to make that statement.”
wonder how much Gorman's comp is being reduced by as well
MS compensation was already trash in Lit’s survey
because they can lowball analysts that will take a 30k paycut to work there vs. every other bank but goldman. Kinda like the goldman discount. GS and MS are always top 2 on league tables (and top 2 banks in general in my opinion) and people get cranked long hours and take paycuts just to work there in my experience. Every college hardos dream
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