Morgan Stanley, Citigroup Lead Investment Bank Pay Cuts

Morgan Stanley (MS), Citigroup Inc. (C) and Credit Suisse Group AG (CSGN) made some of the year’s biggest cuts in compensation for investment bankers, averaging as much as 30 percent, as Wall Street firms grappled with lower revenue. A table summarizing changes in compensation appears below.

Morgan Stanley, owner of the world’s largest brokerage, will also cap cash awards and defer more payouts, people with knowledge of the plans have said, while Zurich-based Credit Suisse (CS), Switzerland’s second-largest bank, plans to give a portion of senior employees’ bonuses in bonds backed by derivatives. New York-based Citigroup may cut some bonuses in the securities and banking unit as much as 70 percent.

Wall Street firms are curbing pay and changing formulas to limit expenses, with some giving more stock and less cash. Revenue shrank last year as mergers and trading slowed, turning financial stocks into 2011’s worst performers in the Standard & Poor’s 500 Index. Recipients may find they do better with shares instead of cash, according to Paul Sorbera, president of Wall Street executive search firm Alliance Consulting.

“If things turn around, it may really turn out to be a windfall for them,” said Sorbera, whose firm is based in New York. “Some of these stocks are off 80 percent.” The S&P Financials Index advanced 8.6 percent this year as of last week’s close, and Bank of America Corp., ranked second by assets in the U.S., was leading the Dow Jones Industrial Average with a 31 percent advance.

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Photographer: Simon Dawson/Bloomberg

The Citigroup Inc. building.

Blaming Bonuses

Bank of America plans compensation cuts averaging 25 percent, with some cash bonuses capped at $150,000 and some base salaries frozen at the Charlotte, North Carolina-based company, people have said. (Click here to see details.) Goldman Sachs Group Inc. (GS) cut discretionary compensation “significantly more” than the New York-based firm’s 26 percent drop in revenue, Chief Financial Officer David Viniar said on Jan. 18.

Financial firms boosted salaries starting in 2009 to de-emphasize bonuses, which lawmakers said had encouraged outsized risks that fueled the financial crisis. Still, bonuses have made up the bulk of pay packages, and the size of the cuts stirred disappointment on Wall Street.

Morgan Stanley Chief Executive Officer James Gorman said Jan. 25 that the “world has changed,” and that bankers at the New York-based firm must accept lower pay. “If you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job,” Gorman said in a Bloomberg Television interview. “If you’re really unhappy, just leave. I mean, life’s too short.”

The following table lists some of the Wall Street firms reducing pay, with summaries of the terms. Links to news stories with more complete descriptions are in the right-hand column.

                            AVERAGE
COMPANY                     CUT        IMPACT*
----------------------------------------------------------------
Credit Suisse Group AG      30%        Affects senior investment
                                       bankers; some get bonds
                                       backed by derivatives.

Morgan Stanley              20%-30%    Covers senior investment
                                       bankers and traders, caps
                                       cash bonuses at $125,000,
                                       raises average deferred
                                       pay to 75 percent.

Citigroup Inc.              30%        Reduces bonuses for
                                       investment banking unit.

Bank of America Corp.       25%        Applies to investment
                                       Bankers; freezes
                                       some salaries
                                       and limits some cash
                                       bonuses to $150,000.

Goldman Sachs Group Inc.    More than  Affects pay for all
                            26%        33,300 employees.

JPMorgan Chase & Co.         9%        Covers salary, bonus
                                       and benefits at
                                       investment bank.

*Summary of terms; for more complete details, click on
highlighted links to original articles.

To contact the reporter on this story: Patrick Clark in New York at pclark48@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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