MORGAN Stanley defied the gloom hanging over the investment banking industry, reporting a rise in full-year profits in all of its three businesses.
Overall, pre-tax profit was up 535 per cent to $6.2bn, with earnings per share up to $2.44 – an increase of 398 per cent on 2009. Quarterly profit was up 88 per cent.
But although the bank grabbed market share from its rivals in equity capital markets deals, advisory fees recorded a drop-off towards the end of 2010, decreasing nine per cent in the fourth quarter compared to the same period in 2009. The bank was also behind its rivals in fixed income trading, prompting chief executive James Gorman to replace Jack DiMaio with Ken DeRegt as head of the division.
Chief financial officer Ruth Porat said the “risk-on, risk-off attitude” during 2010 had dampened trading activity and implied it had delayed some capital markets deals: “It was a bit frustrating throughout the year to see our [investment banking] pipeline is building,” she said. “It’s a question of seeing them move through the pipeline.”
In contrast to Goldman, where spending on pay decreased four per cent, Morgan Stanley spent 11 per cent more on compensation in 2010 for a total cost of $16bn, with pay per head rising by 7.5 per cent to an average of $256,595 (£161,598).
The bank said that $247m of this cost was due to the one-off bonus tax imposed in the UK last year. Despite pay rising, however, the ratio of compensation to revenues fell to 51 per cent from 62 per cent.
The bank also said that it had added three per cent to its payroll last year for a total headcount of 62,542. The new hires were concentrated in trading and building up its fixed income business. Although the bank would not say where the new jobs are located, Porat repeatedly referred to strong growth in Asia during a conference call on the results. Chief executive James Gorman said: “We’re not aggressively hiring right now but if a specific opportunity comes up, we fill it.”
The bank also said that it was still engaged in the process of de-leveraging and “reducing the drag from legacy positions… in a Basel III world”.