NEW YORK (Reuters Breakingviews) – Morgan Stanley is making more, and paying more. Logical as that sounds, it’s also rather daring. Handing over big sums to traders and dealmakers is a potentially touchy subject in a pandemic that has cost millions of Americans their livelihood, and brought Wall Street firms’ market makers huge profits. Fortunately, Morgan Stanley is better placed than some peers to share the wealth.
The three months ending in September were kind to the $92 billion firm. Morgan Stanley’s earnings increased by 26% year-on-year, and its $2.3 billion in equities revenue put it back at the top of Wall Street’s slippery pole for stock trading, after sliding behind Goldman Sachs the previous quarter. CEO James Gorman was able to buy brokerage E*Trade Financial, and intends to buy asset manager Eaton Vance, while still having more capital than regulators say he needs.
As a result, this year is shaping up to be a good one for Gorman’s underlings. Trading and investment-banking revenue rose 24% over the year to date, compared with the same nine months in 2019, and pay earmarked for that division rose 26%. That made Morgan Stanley an outlier, at least for now. Goldman paid more in dollars, but less as a share of revenue. JPMorgan’s comparable revenue rose by nearly 30%, but its bankers’ pay increased just 10%.
Gorman has more freedom over pay than some of his rivals. His firm isn’t a giant lender to American consumers and businesses, for one, which puts him less in the crosshairs of progressive politicians. It also means that Morgan Stanley overall isn’t facing a huge slump in earnings this year, unlike all of the big main-street banks against which its traders and rainmakers compete. Gorman’s own relatively low profile doesn’t hurt either.
There’s another difference: Morgan Stanley won props last year for being restrained in Gorman’s pay. Make no mistake, a $27 million award for 2019 is still astronomical by real-world standards. But the Australian-born bank chief took a pay cut in 2019 of $2 million, even though his full-year profit fell less than at his four biggest rivals’ banks. Goldman, in an exceptionally tin-eared moment, awarded David Solomon a 20% raise, after a year when earnings fell by one-fifth. Those are the kind of gestures that endure.
Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.