by Scott Murdoch and Kane Wu
SYDNEY/HONG KONG (Reuters) – Morgan Stanley plans to cut annual bonuses for its investment bankers by up to nearly 50% in Asia, two sources said, as the U.S. bank slashes costs to deal with difficult market conditions.
This measure could be implemented also in the United States and Europe, reducing the earnings of the most successful bankers who, in 2021, earned up to 20% more in bonuses, according to these sources.
Bonus payout discussions are currently underway at Morgan Stanley globally, they added.
According to a third source, bonus cuts at Morgan Stanley in Asia are expected to average 30% and lead to a drop of around 30% in the overall compensation of bankers in Asia, the other two sources said.
Bonuses are an important part of bankers’ compensation and are usually tied to the performance of business units and individuals.
Morgan Stanley, which does not release details of bonus payments, declined to comment. The sources interviewed asked to remain anonymous, citing the confidential nature of this information.
Many banks around the world are suspending investment activities due to rising interest rates and a weak economic outlook, with the United States heading into a short and shallow recession over the next year.
Investment banking revenues are now under pressure after last year’s record profits from their M&A and IPO advisory business as COVID-19 restrictions were gradually lifted .
Wall Street firms rely heavily on bonuses to recruit and retain talent in a competitive business environment, but top rivals Morgan Stanley are also reportedly cutting their bonuses.
Similarly, Goldman Sachs’ bonus pool for senior executives is expected to halve, the Semafor news platform reported Thursday, citing sources.
Citigroup and Bank of America are also considering cutting their bonuses by 30%, sources told Bloomberg Law earlier this month.
According to projections released last month by a New York consultancy, Johnson Associates, Wall Street investment bankers can expect much smaller bonuses this year due to the slowing economy.
EXPOSED TO MARKET VOLATILITY
Discussions about pay and performance at Wall Street banks typically begin in December, with overall bonuses being finalized by the end of the year.
In Asia, the biggest bonus cuts at Morgan Stanley will be felt in areas such as capital markets activities, which are more exposed to volatility in global financial markets.
The talk of bonuses this year comes after Morgan Stanley chief executive James Gorman announced “modest job cuts” around the world earlier this month.
The bank has so far cut about 2% of its workforce, or some 1,600 positions, Reuters reported last week.
In Asia, around 50 investment banking positions were cut in 2022, the first two sources said. More than 90% of those cuts were made in Morgan Stanley teams in China, both onshore and offshore, one added.
Severe health restrictions imposed in China and heightened regulatory oversight of Chinese companies in the United States weighed on Asian capital markets and M&A activity.
The MSCI index comprising stocks from Asia and the Pacific (excluding Japan) has fallen by around 18% this year. IPOs in Hong Kong, a key source of revenue for foreign banks in the region, are also at their lowest in 2022 for a decade, Refinitiv data shows.
Morgan Stanley’s third-quarter profit missed analysts’ expectations, falling 30% as slowing trading weighed on its investment banking business.
(Reporting Scott Murdoch in Sydney and Kane Wu in Hong Kong; Dagmarah Mackos, editing by Kate Entringer)
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