Morgan Stanley (MS.N) plans to cut investment bankers’ annual bonuses by as much as half in Asia, said two people with first-hand knowledge of the matter, as the Wall Street firm contains costs to deal with tough market conditions that have hurt its revenue.
The extent of the cuts in Asia could be repeated in Morgan Stanley’s U.S. and European operations, and would be opposed to last year when its top bankers received up to 20% more in bonuses globally, said the sources. Bonus payout discussions are currently in progress at Morgan Stanley globally, they said.
A third person familiar with the matter said the bonus cuts in Asia for the bank are anticipated to be around 30% on average for all its investment banking teams and markets. The slashed payouts could result in its bankers’ overall compensation in Asia falling by an average of 30%, said the first two sources.
While reductions to bankers’ 2022 bonuses have been well expected, this is the first time the likely scale of the cuts at the U.S. bank are being detailed. Bonuses account for a huge part of total compensation for bankers, and are usually associated with performances of business units and individuals.
Morgan Stanley, which does not reveal details of bonus payouts, refused to comment. The sources asked to remain anonymous as the information is confidential.
Most banks around the world are pausing dealmaking activities because of increased interest rates and weak economic prospects, with the U.S. economy entering a short and shallow recession over the coming year.
That has weighed on earnings of investment banks after they made record profits in 2021 from advising on mergers, acquisitions, and initial public offerings as the world emerged from COVID-19-induced curbs.
Wall Street firms depend greatly on bonuses to hire and retain talent in a competitive business environment, but Morgan Stanley’s top rivals are also purportedly slashing bonuses now.
Goldman Sachs Group’s (GS.N) bonus pool for top employees is expected to reduce by as much as 50%, news platform Semafor reported on Thursday, citing people with knowledge of the matter.
Citigroup Inc (C.N) and Bank of America Corp (BAC.N) are also looking to slash bonus pools by as much as 30%, Bloomberg Law reported earlier in December, citing people familiar with the internal deliberations.
Wall Street investment bankers can await much smaller bonuses this year as the economy weakens, according to projections published in November by Johnson Associates Inc, a compensation consultant in New York.
Morgan Stanley Exposed To Market Volatility
Compensation and performance discussions at Wall Street banks normally start in December, with overall bonus pools decided by the year-end.
In Asia, the largest falls in Morgan Stanley’s bonuses will be experienced in areas including the capital markets businesses which are more exposed to global financial market volatility. This year’s bonus discussions are happening after Morgan Stanley CEO James Gorman said earlier in December that the bank was making “modest job cuts” globally.
Until now the bank has laid off about 2% of its workforce, which hit about 1,600 positions, Reuters reported last week.
Buy Crypto NowIn Asia, about 50 investment banking jobs have been cut in 2022, said the first two sources. More than 90% of those firings were made in Morgan Stanley’s China teams based both offshore and onshore, one of them added.
China’s stringent COVID-19 restrictions and tightened regulatory scrutiny on Chinese firms in the United States have weighed down on Asian capital markets and mergers and acquisitions activity.
MSCI’s key Asia-Pacific ex-Japan index (.MIAPJ0000PUS) has slid about 18% in 2022. And Hong Kong IPOs, a major source of revenue for foreign banks in the region, are at the lowest point this year in a decade, based on Refinitiv data.
Morgan Stanley posted a 30% fall in third-quarter profit in October, falling short of analysts’ estimate as a slowdown in global dealmaking hit its investment banking business.
