Morgan Stanley to pay smaller proportion of revenue in bonuses

Wall Street investment bank Morgan Stanley says it will pay a smaller portion of revenue in bonuses to its bankers and traders this year, even in a better revenue environment.

The bank reported a drop in fourth-quarter adjusted earnings, missing estimates, as it deferred fewer bonus payouts and unexpected market swings hit its division that trades bonds, currencies and commodities..

In the past, Morgan Stanley has deferred up to 80 per cent of its bonuses, but it said last month it would pay more up front because it was on a stronger financial footing and in a better position to bring its practices into line with rivals.

Morgan Stanley said it would pay 39 per cent or less of revenue from its institutional securities business to employees in 2015. Chief executive James Gorman said in June the ratio would be 40 per cent or less.

Compensation expenses rose to $5.1 billion from $4.0 billion, with about 41 per cent of revenue from the bank’s institutional securities business going into bonuses. Mr Gorman said he was not concerned about losing talent because of the lower payout ratio.

Morgan Stanley had a "very challenging" quarter in commodities because of the decline in oil prices, chief financial officer Ruth Porat told Reuters.

It has been shrinking its presence in the bond market as tougher capital requirements take hold, and the bank has said it is now more focused on returns than revenue. However its adjusted average return on equity fell to 4.5 per cent in the quarter, below the 10 per cent minimum Mr Gorman wants.

Revenue from the bank’s increasingly important wealth management business rose 2.4 per cent to $3.80 billion. But the pretax profit margin of 19 per cent including adjustments was below the 20 per cent Gorman has set as a minimum.

Overall, earnings attributable to common shareholders rose to $920 million, or 47 cents per share, from $36 million, or 2 cents per share, a year earlier. – (Reuters)