James Gorman has spoken, again. Gorman has a predilection for making aggressive statements about investment banking pay, but his statements are usually aimed at high-earning senior bankers. Now, he seems to have taken a pot-shot at juniors.
In a lengthy interview with the Financial Times, Gorman says variously that investment bankers in general are still overpaid, that in these days of lower leverage a 10% return on equity is the kind of thing that one now aspires to, and that Morgan Stanley will be keeping its two year analyst programme (unlike Goldman Sachs), but that the programme's participants could find their pay "reduced significantly."
If you're an IBD analyst working 100 hour weeks, the prospect of significantly reduced pay may not be too edifying. And yet Morgan Stanley could afford to reduce pay a bit - the recent junior M&A salary and bonus survey from recruiters Dartmouth Partners suggested it was among the best payers in the 2012 analyst bonus round. VPs and MDs at Morgan Stanley may have also their pay cut significantly at the end of this year: when it revealed its poor Q2 results the bank said it had cut compensation for its investment bankers by a disturbing 36%.
Longer term, Morgan Stanley may not be the only bank cutting pay for its junior bankers. "People are starting to question the value of graduate hires," said one head of recruitment at our recent breakfast meeting for senior recruiters.
Research firm High Fliers says investment banks in the UK are now paying graduate starting salaries of £45k. A few years ago, there were unconfirmed rumours that RBS was paying total first year packages of £60k.
As well as signalling lower pay for all staff, juniors especially, Gorman has flagged further redundancies. “There’s way too much capacity and compensation is way too high,” he says, referring to the industry as a whole. Morgan Stanley will commence a new round of cost cutting in the new year, Gorman says - just before bonus time. As we have pointed out before, if you lose your job in the UK before your bonus hits your bank account, you can expect to receive approximately....zero.
Meanwhile, at Barclays Investment Bank
Meanwhile, there are some changes over at Barclays today. While Project Mango ripens slowly in the warm hands of Rich Ricci, the investment bank has been making some initial changes to management, some of which seem a little strange.
Most notably, Ivan Ritossa, the powerhouse behind Barclays' FX success, is inexplicably leaving. So is Guglielmo Sartori di Borgoricco, Barclays' head of global distribution. So is Iain Abrahams, whose name is apparently sullied as an expert on tax avoidance - something Barclays ostensibly wants to do a lot less of, despite hiring Kirren Senivassen, a structured capital markets AVP from KPMG only the other day.
At the same time, Eric Bommensath, a French Grande Ecolier (École Polytechnique) and long-time head of EMEA FICC trading, is being elevated as head of a newly formed 'markets division' in which fixed income and equities trading will be mashed together and managed as one in the hope of achieving 'cost savings.' Bommensath's ascension isn't explained, but he's been at Barclays a long time. Maybe he's close to Rich Ricci? Maybe he likes Mangos?
To the outside observer, the fusion of equities and FICC at Barclays, and the management of the new division by a long-term FICC man looks like bad news for Barclays' equities professionals. Equities is considerably the smaller of the two businesses and hasn't been doing too well after some heavy investment in 2010.
However, one Barclays equities professional says Bommensath's inauguration is no big deal: "Jerry Del Missier was a FICC guy and he used to run markets, so this is just a return to how it was," he says.