Morgan Stanley, one of the Streets biggest players in equities trading, is reportedly cutting its global bonus pool for traders.
According to a report from Bloomberg, the bulge firm is reducing the bonus pool for the equities division by as much as 4 percent after profits and commissions remained stagnant in 2016, according to people with knowledge of the plans.
Bloomberg added that the firm, which is set to pay annual bonuses to employees next month, has been fine-tuning calculations for pay packages since November, according to the people, who asked not to be identified describing the deliberations.
As reported by Traders Magazine last November, executive recruitment and compensation consultancy Johnson Associates said that Wall Streets year-end bonus incentives for 2016 were expected to be modestly lower compared with 2015, marking the second consecutive year of smaller incentive payouts. Equity traders, the group said, can expect to see their bonus payouts shrink 5% to 15% for the year.
The Johnson Associates third quarter compensation analysis shows that overall year-end incentives, which include cash bonuses and equity awards, will be lower by 5 to 10% overall across the board compared to last year, when bonuses also fell by 5 to 10%.
Johnson Associates reported that bonuses in 2015 would be down 5% from the year prior.
At the time, this wasnt much of a surprise to equities traders, as commission spend for the industry has be flat over the last few years. Large institutions are shifting trading volume to algorithmic avenues of execution as the overall commission pool remains flat, according to a recent Greenwich Associates study.
Greenwich Associates estimated that the annual pool of cash equity commissions paid by institutional investors to brokers on U.S. equity trades in 2016 to be $9.65 billion. This amount is down more than 30 percent from its peak in 2009.
According to Bloomberg, Morgan Stanleys equities revenue dropped 3.5 percent to $6.08 billion during the first nine months of 2016. Citigroup Inc., Goldman Sachs Group Inc. and Bank of America Corp. all suffered drops of 12 percent to 14 percent in that business, while the biggest European investment banks all reported declines of more than 20 percent on a dollar basis. JPMorgan Chase & Co. posted the smallest decrease, about 1 percent.
Morgan Stanley cut compensation costs at its investment banking and trading unit by 11 percent in the first nine months of 2016, as revenue dropped 12 percent. The bank is set to announce its full-year pay expenses later this month.
