Business

Morgan Stanley sees profits jump

  • 20 January 2011
  • From the section Business
The Morgan Stanley worldwide headquarters building in New York
Image caption Morgan Stanley paid employees generously, but made 60% of their remuneration packets conditional

US Wall Street firm Morgan Stanley has reported a 60% jump in fourth-quarter profit, as expected by markets.

The US's second-largest investment bank announced a net profit of $600m (£375m) for the last three months of 2010, up from a $376m profit a year earlier.

The firm followed rivals Goldman Sachs and Citigroup in reporting poor client activity at its investment bank unit.

But this was more than offset by strong performances by its wealth management and asset management business lines.

Morgan Stanley's share price jumped 2% at the open of trading in New York - retracing much of the 3.5% drop recorded on Wednesday - before falling back again as the morning progressed.

"High expectations were baked into the results, they were expected to be good so the market is not showing much reaction to them," said Nick Serff, market analyst at City Index.

Total net revenues for the quarter rose 14% on a year ago to $7.8bn.

More than half of the revenue figure came from the firm's two divisions responsible for looking after money for wealthy clients, and for large companies and institutions.

That included a turnaround at the firm's brokerage joint venture with Citigroup - Morgan Stanley Smith Barney - which provides financial markets trading accounts for wealthy individuals.

Industry change?

In contrast, the banking group's "Institutional Securities" division - which provides financial advice to companies, and carries out sales and trading in global capital markets - underperformed.

The poor showing followed the pattern seen at rival firms, dragged down in particular by a dismal business levels in "fixed income" - bonds, credit derivatives and other debt products.

However, the firm was able to boast that bankers providing advice on mergers and acquisitions, as well as those arranging stock market flotations and trading in shares, put in a much stronger showing than their competitors did.

"It's been a running theme for these banks for several quarters now," says Richard Bove, bank analyst at Rochdale Securities.

"Is the industry undergoing a structural change with reduced trading, or is this just a function of inactivity and people unwilling to trade, given the current market?"

"These companies are looking at markets that have lost, in some cases, two-thirds of their activity since the crisis, and it looks like it's not coming back anytime soon," he noted. "It will take a few years for these banks to adjust."

Pay

Total compensation for 2010 as a whole was $16bn, up 11% from the year before.

This lagged the 35% increase in the firm's total net revenues for the year to $31.6bn, meaning that the share of total pay in net revenues dropped from 62% to 51%.

The company went to great length to point out that it had overhauled its bonus culture in order to ensure greater loyalty and more forward-looking risk management on the part of its staff.

"For 2010, Morgan Stanley again significantly increased the portion of year-end compensation that is deferred and subject to clawback, while reducing the portion paid in cash," said the Wall Street firm.

It said that 60% of pay would be deferred for up to three years, linked to the company's performance and reclaimable in some circumstances - up from 40% in 2009.

In the case of senior executives, the figure was 80%.

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