While Morgan Stanley Smith Barney LLC may have cut back on bonuses for its investment bankers, the company's brokerage unit saw a hefty increase in the total amount paid to brokers this year.
Pay at the firm's institutional securities unit, which includes bankers and traders, dropped to $5.3 billion in the year's first nine months, a decrease of 8%. Revenue in the unit, however, rose 32% to $12.7 billion, according to the company.
Meanwhile, compensation at its brokerage unit climbed 41% to $5.8 billion. The brokerage business generated $9.3 billion revenue, far less than the institutional securities unit's haul.
Brokers “are on a much more fixed formula for compensation, typically,” said Rose Marie Orens, senior partner at Compensation Advisory Partners LLC. The investment bank “has a lot more discretion over how much gets paid out.”
The dramatic rise in the brokerage unit payout is due to Morgan Stanley's joint venture with Citigroup, in which the firm acquired a 51% stake in the combined Morgan Stanley Smith Barney
Morgan Stanley also reported today that it had a total of 18,119 reps within the brokerage unit at the end of Sept. — the largest of any brokerage — and an increase of 32 brokers from the end of June.
For the last 12 months, MSSB's broker head count is down slightly from 18,160 at the end of September 2009, according to company earnings. Even though it is a marginal decrease, other wirehouses that have recently reported earnings have indicated that they have significantly increased their brokerage force over the last year: Bank of America Merrill Lynch
added nearly 200 brokers in the third quarter alone and more than 300 over the last year; JPMorgan Chase & Co., meanwhile,
has added 300 advisers over the last 12 months.
Despite the nearly flat rep count, Morgan Stanley advisers boosted their combined client assets by 7% in the third quarter to more than $1.6 trillion. This occurred as the brokerage increased its percentage of assets from high-net-worth individuals during the quarter and decreased the assets it oversees from clients with less than $1 million.
(Click here to see the breakdown of MSSB reps' assets by client segments.)
Overall, Morgan Stanley became the latest investment bank to report weaker results Wednesday from a trading slowdown during the summer.
The company reported a net loss during the third quarter as revenue fell 20% and because of some one-time charges. Even stripping out the charges, adjusted earnings tumbled from the year-earlier period.
Morgan Stanley's CEO, James Gorman, who became Morgan Stanley's chief executive after overseeing the brokerage division, said in a statement: "Our results in aggregate clearly do not reflect the true potential of Morgan Stanley's global client franchise, and I am not satisfied with our overall performance."
In the brokerage division, Morgan Stanley generated 49% more revenue in the first nine months of this year, compared with last year. Part of the reason is that Morgan Stanley had control of Smith Barney for only about four months at this point last year.
Ms. Orens said guarantees paid to Smith Barney brokers and other new hires will increase the unit's compensation costs temporarily. “It's a short-term issue here because they made a decision to diversify their business,” she said.
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Wire services were used in this report]
