Ahead of a deluge of bank earnings reports starting tomorrow morning, which include JPMorgan, Wells Fargo and Bank of America, and all of which are "whispered" to come in above expectations, an ominous harbinger hit the newswires this afternoon when Reuters reported that Morgan Stanley not only laid off various senior investment bankers last week, just ahead of bonuses season, but also slashed investment banking bonuses by roughly 15% as a result of "a decline in revenue from dealmaking and capital raising across Wall Street."
While individual bankers bonuses fluctuated depending on performance and geographic region, many are said to have received a smaller paycheck for 2016. Furthermore Morgan Stanley, which remains a bulge bracket investment bank and ranked fourth in IB fees last year, also cut more than 20 MDs from its global investment banking division, roughly 5% of total.
While Morgan Stanley, like other major banks, typically lets go of the bottom 5% of its workforce at year-end to get rid of underperformers, the cuts to senior bankers were deeper than in years past, according to Reuters sources. Morgan Stanley also announced the promotion of managing directors on Thursday.
The layoffs will hardly come as a surprise as Wall Street banks have been shedding staff and curbing compensation for years to cut costs. They have also been losing top talent to boutique firms, which can pay a greater portion of compensation in cash. Further pressuring Wall Street's animal spirits, global investment banking fees across Wall Street declined 7% in 2016 to a three-year low, according to Thomson Reuters data.
While drops were recorded in most IB vertical, equity capital market fees, which declined 23 percent, were hit the most as a result of a drop off in initial public offerings. IPO activity in 2016 occurred at the lowest levels since 2009. M&A also slowed from record levels in 2015, with global deal volume falling 17%.
Ironically, despite being largely shunned by Wall Street ahead of the election, there is hope that banker compensation will rebound in 2017 thanks to Donald Trump, as a result of more active trading by retail investors, as well as a rebound in bond issuance (with the first 10 days of January already above $100 billion in IG issuance, an all time record) and other M&A and advisory activity.