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Braced for bonus cuts at Morgan Stanley
Jim Armitage, Evening Standard17 Dec 2007
Top investment bank Morgan Stanley was today announcing bonuses to thousands of London staff, having delayed the declarations in a last-minute scramble to finalise numbers following rival Goldman Sachs' bumper payouts.
Many payouts at the bank's Canary Wharf European headquarters will be sharply down on last year as chief executive John Mack cuts overheads following almost $4 billion (£2 billion) of write-offs due to the subprime mortgage crisis.
Bonus day comes as the bank is reeling from the axeing of Zoe Cruz, the so-called "Cruz missile" and Wall Street's most powerful woman banker. Morale has also been buffetted by a major shake-up of European operations.
But despite the losses run up by its credit divisions, the bank still needs to make sure its top players in successful areas such as mergers and acquisitions and equities are paid enough to stop them leaving.
"Mack's people have had to rob Peter to pay Paul and that's a tortuous process. Hence the delay," said one headhunter.
Advising on, and structuring, takeover deals is expected to form the mainstay of investment banking profits next year. Although big private-equity takeovers have dried up as the credit crunch kills off debt financing, the resulting lack of competition means more businesses can afford to buy or merge with their rivals.
Meanwhile, Goldman Sachs sources said last week's bonus round there was far higher than reported. Even in the junior and middle ranks - which the bank calls analysts, associates, vice presidents and executive directors - bonuses this year were up by between 40% and 50% in the M&A and equities divisions.
In many cases, that would have meant junior staff at the Fleet Street headquarters, mainly in their early-to-mid 20s, will be pocketing between $100,000 and $500,000.
Similar percentage rises were enjoyed by the higher echelons at managing director level - one step down from partner managing director - where bonuses are commonly counted in the millions.
Goldman's profits announcement tomorrow will highlight how it managed to dodge the bulk of the credit crunch and report record profits.
One of the few Goldman divisions not to receive record payouts was its credit division, although they will be down only about 10% on last year.
Financial News today said staff in Merrill Lynch's London-based credit business have been warned to expect cuts to their bonuses, due to be announced on 8 January, of as much as 65%.
The bonuses will contain a higher proportion of share options than in previous years. One Merrill banker said employees were being told up to 75% could be in shares.
Merrill Lynch is also considering accelerating the rate at which stock options vest. Analysts and insiders said it appeared to be an attempt by the bank to bolster its equity capital base, which has been hit hard by a $7.9 billion writedown as a result of the global credit market turmoil.
Reader views (4)
Lots of people work 80 hours a week. If the firm makes large profits, then the workers may be in line for large bonuses. For 2008, when both of these firms received money for the taxpayers, they should not pay out any bonuses. THe money should be paid back to the taxpayers first.
- Rick, Washington D.C., 09/01/2009 16:59
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Basic salaries in many financial institutions are simply not competitive compared to other industries when considering 18 hour days, working weekends, on call 24 hours not to mention highly pressurised roles. Bonuses are part of the compensation package and without which it simply would not be worth the sacrifice. Many teams in the city have made large amounts of money - beating expectations and even up since last year. Bbonuses should reflect the individual and team performance. Zero or minimal bonuses are actually an insult to the hard working professionals who have pledged their loyalty to a company through hard work to companies who no longer show any to them.
- Rebecca, London, 16/12/2008 12:41
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Remember, a City "bonus" is part of the total compensation package... the basic salary alone, particularly at junior levels, is barely enough to cover cost of living... let alone compensate for the 18hr days and lost weekends many are exposed to.
- Simon, London, 16/12/2008 10:20
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They made less money, they get a smaller bonus - what's the problem? A 'bonus' is supposed to be just that.
- Paul, London, 18/12/2007 11:51
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