Morgan Stanley Increases Investment Bank Pay Pool by 3% to $7.2 Billion

Morgan Stanley (MS), the sixth-largest U.S. bank by assets, set aside $7.2 billion to pay employees at its investment banking division in 2011, 3 percent more than a year earlier, as the unit’s revenue climbed 6 percent.

Compensation at the institutional-securities unit, which includes salaries, bonuses and benefits for traders and bankers, was 42 percent of revenue, down from 43 percent in 2010 and from 56 percent in 2009, according to figures posted on the New York- based firm’s website.

The division’s fourth-quarter pay expense fell 12 percent from a year earlier, following rivals Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co.’s investment bank in lowering costs. Morgan Stanley said last month it plans to cut 1,600 jobs. Goldman Sachs disclosed yesterday that it eliminated 2,400 positions and reduced full-year compensation 21 percent in 2011.

“I think there’s more to come,” William Fitzpatrick, a Milwaukee-based financial-services analyst at Manulife Asset Management, said on Bloomberg Television’s “InsideTrack” before the results were released. “The industry is undergoing some changes here, and some are more structural than cyclical.”

Companywide compensation and benefits at Morgan Stanley rose 3 percent to $16.4 billion as revenue climbed at the same rate. That was enough to pay each of the firm’s 61,899 employees $264,996 on average for the year, more than the $254,596 it set aside for each of the 62,542 employees at the end of 2010, according to figures released today. The bank doesn’t report how many people work in institutional securities.

Brokerage Unit

Morgan Stanley’s brokerage division, which employed 17,156 financial advisers at the end of December, down from 18,043 a year earlier, set aside $8.35 billion for pay, 6 percent more than in 2010. The unit’s compensation cost, which is set by a fixed grid for many employees, was 62 percent of its revenue, unchanged from a year earlier.

Goldman Sachs said yesterday that it reduced its compensation and benefits expense to $12.2 billion in 2011 as revenue slid 26 percent. The expense was enough to provide $367,057 to each of its 33,300 employees, down from $430,700 for each of the 35,700 workers at the end of 2010.

JPMorgan Chase & Co., the biggest and most profitable U.S. bank, reported last week that it lowered pay at its investment bank 9 percent in 2011, enough to pay each worker an average $341,552.

The average compensation figures are derived by dividing the overall compensation pool by the number of employees, and they don’t represent individual workers’ actual pay. Investment banks set aside revenue throughout the year for pay and typically decide bonuses at year-end.

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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