Morning Coffee: Morgan Stanley's rarefied London bankers got big bonus increases. Job security is being taken from someone who really needs it

When Morgan Stanley's bonuses were announced in January, there were complaints: analysts and VPs in London said they had less than they'd hoped for. This was followed by reports that managing directors at Morgan Stanley in Asia had received far bigger bonus increases than everyone else to compensate for being zeroed in previous years. 

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It now seems that managing directors (MDs) in London may have benefited from a similar dynamic. Financial News reported yesterday that Morgan Stanley's London material risk takers (MRTs) each received nearly £900k in bonuses last year ($1.2m at today’s exchange rates). When salaries are added in, its London MRTs earned an average of £1.5m ($2m) each.

That was more than the £1.1m Morgan Stanley paid its London material risk-takers for 2023. Most of the increase was driven by a 67% increase in the average bonus. 

Material risk takers are typically top bankers, traders and risk managers who have responsibility for 'material risks' involving the bank. They are usually MDs. It seems that Morgan Stanley's Asian MDs weren't the only people at the bank getting big bonuses increases for last year. 

Why did Morgan Stanley's London bankers also get big bonus hikes? The 67% increase was somewhat better than the year-on-year revenue growth of 22%, so it wasn't that. As in Asia, it might be in compensation for poor bonuses in 2023. But there were other factors at play too. 

Firstly, Morgan Stanley's population of "material risk-takers" fell. Their number in London went from 420 in 2023 to 325 in 2024. This is likely to have been a result of the Bank of England’s decision to tighten the definition of an MRT, ruffling a few egos in the research and compliance departments, but restricting the disclosures to genuine rainmakers (in the top 0.3% of the bank’s earners).  There will also be a business mix effect – Morgan Stanley’s equities trading and capital markets businesses had a great 2024 compared to the fixed income franchise, which possibly means that London had more claim on the bonus pool globally.

And then there's the lifting of the European Union's bonus cap.  Unlike Goldman Sachs and JPMorgan which have said they will pay bonuses of up 25% and 10% salaries in the post-cap world, Morgan Stanley hasn't divulged its intentions.  But the end of the cap might be having an effect.

There may yet be a downside to this. We haven’t seen a full industry cycle yet, but the smart commentators had been expecting that London would move closer to US norms of higher overall earnings, but with a lot more cyclical risk transferred to the employees. Last year's data is consistent with that. If deals don't come back by July or August, Morgan Stanley's London bankers at least could find that next year's bonuses are down 67% instead. 

Elsewhere, there are very few genuinely unsackable employees in the banking industry.   As the saying goes, the graveyards are full of irreplaceable people.  But one position where it’s generally accepted that you really ought to have the equivalent of tenure is the President of the Federal Reserve. 

Well, a lot of things which were previously believed to have been certainties have turned out not to be in recent months.  The Supreme Court is about to rule on a legal precedent from 1935 called “Humphrey’s Executor” (presumably for reasons that made sense at the time), which determines which federal officials the President can and can’t fire.  The actual case is about another government agency, but some legal scholars believe that if it’s legal to fire a member of the National Labour Relations Board, then it would take some fancy footwork not to conclude that it’s also legal to fire anyone on the board of the Fed, including Jerome Powell.

This would be, of course, yet another thing for markets to worry about, so it might not happen immediately, simply for that reason.  But once a precedent is on the books, it’s always likely to be used one day.  It just goes to show that there’s hardly any point in chasing job security in banking – what’s safe today has a habit of becoming risky tomorrow.

Meanwhile …

Possibly as a result of the uncapped bonus regime, perhaps for other reasons, Americans are getting more interested in working in the UK.  They accounted for nearly 10% of all clicks on a British job website in the first quarter of the year. (Bloomberg)

Although they’re aware that it’s not a pleasant lifestyle, and that preparing for demanding interviews and internships can kind of wreck your college experience, American teenagers still love the idea of making money, they don’t have any stigma of a financial crisis that happened before they were born, and the competing attraction of BigTech is much less. (Business Insider)

Last seen drowning his political sorrows and toasting his financial gains on election night, Mike Novogratz has continued to adapt to the new environment – his latest venture fund is concentrating on stablecoins and crypto payments companies and has raised more than its goal of $150m (Bloomberg)

A profile of “Capital Condor” – an options trader called David Chau whose nickname comes from his favourite trade.  He likes “chilling at home, doing my own thing”, and also recommending massively leveraged strategies to a group of 1,000 paying followers who are collectively big enough “whales” to move the stock market.  Retail investors now account for 29% of options volume; hopefully this will end well. (WSJ)

Sometimes the shock of changing to a principal role is hard to handle, and sometimes the timing of a fund launch is just unlucky.  In either case, Pamalican Capital, the Hong Kong hedge fund founded by former Goldman Sachs partner Jamie Goodman, has not had a great start – it’s now looking for outside investors to replace its original backers at Millennium. (Bloomberg)

There are nowhere near as many “American Psycho” fans in actual investment banks as there are among TikTok wannabes (the films that bankers really love are “Wall Street” and “Margin Call”).  But for the few souls who think they’re being cool by going on about business cards and skincare routines, confirmation that the author of the book and director of the movie are laughing at you. (Variety)

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