Morning Coffee: Morgan Stanley’s smallest MD class for three years. Barclays investment bank may escape harsh cuts
For a variety of reasons (possibly including that it’s just a lower-drama place to write about), the promotions to Morgan Stanley’s top ranks don’t always get the same headline attention as those at Goldman Sachs. But since it’s the first of the Ted Pick era, this year’s Morgan Stanley Managing Director class might be more than usually worth a look.
On the face of it, anyone hoping to work on the principle that “personnel is policy” and get a clue about the future direction of the firm is likely to be disappointed. In divisional terms, 44% are from the “Institutional Clients Group” (the investment bank), compared to 40% last year. There are proportionately slightly fewer new MDs from “Infrastructure” than in the 2023 class (29% versus 33%), but not to such a degree that it’s possible to make any major judgement – we’re talking about a difference of two or three individuals.
In fact, since the total number of new MDs is the lowest since 2020 and quite markedly down – 155 members of the new class, compared to 184 last year – it’s quite surprising the extent to which the proportions are unchanged. Not only are the divisional promotions consistent, but 37% are women (compared to 38% last year) and 29% are ethnically diverse (compared to 28% last year). There is a slight rebalancing away from employees in the USA (58% of this year’s class compared to 66% in 2023) and toward Asia (20% versus 14%).
This strongly suggests that the promotion boards were just told that there were thirty fewer MD slots this year and that the pain was to be shared out equally. In fact, the group that seems to have done the worst out of the 2024 process is “people with advanced degrees”. Last year, there were 79 of them (43% of 184) and this year there were only 56 (36% of 155). Not all of these will be quants or techies, but it seems that the well-educated account for a disproportionate amount of the shrink.
Morgan Stanley makes a point of emphasizing that 44% of the new MDs were hired as “non-officers” (below Vice-President level) and that their average length of time at the firm was 10 years. In all honesty, this doesn’t really mean all that much – one could just as easily turn it around to say that the majority of them were lateral hires and half of them joined after 2013. And it’s not necessarily an easy statistic to interpret in any case; having an MD class that’s largely made up of lifers might indicate a bank that’s a great place where people make long careers, or it might indicate a frustrating culture of seniority and time served rather than meritocracy.
It seems that the most important message from the Morgan Stanley class of ’24 is simply its size. There are fifteen percent fewer seats opening up at the top table, even at the company which was until recently regarded as the best in its class. That’s the environment we’re living in at the start of 2024.
Elsewhere, it seems that for Barclays traders and investment bankers, the attempt to make a last-minute save by delaying the compensation committee might have been a gamble that didn’t pay off. Although late in December, they were talking about business that they had won or expected to get in the last weeks of the year, according to investor relations head Marina Shchukina the final quarter closed with results “similar to what we experienced in Q2 and Q3 — not quite enough volatility for markets, but a little too much for banking”.
But even if the bonus round is disappointing, Barclays bankers can take comfort in the fact that there are no proposals to cut costs more aggressively. Shchukina also said that the investment bank was “of appropriate size and scale to compete effectively with our US banking peers and generate good returns”, and that “To make it absolutely clear, we’re not embarking on a multi-year restructuring here”.
It’s always good to time your best performances to coincide with times at which the firm is looking to cut costs. Although BlackRock is apparently aiming to adjust its business mix to meet the demands of a new era, it probably won’t be looking too harshly at Alister Hibbert, who has been its single highest-paid employee and earned more than Larry Fink in some past years. His Strategic Equity hedge fund delivered 16% returns last year, which is pretty good versus a global long-short peer group. (Bloomberg)
Have we reached “peak pod shop”, and what might the consequences be for the sell side if we have? As the hedge fund industry consolidates to a few mega-firms, it’s quite possible that the trading side of many banks’ businesses will see the same concentration of fee income in a small number of powerful counterparties which has already decimated pricing for advisory bankers. (IFRE)
A surprisingly common nightmare for bankers is to dream that you accidentally blurted out a serious slur at a training session. An employment tribunal has found that it is unfair to dismiss someone for this if they did it without malice and partly as a result of their own dyslexia. However, it’s a better idea to control your language if you can; the victorious plaintiff seems to have had his health and career destroyed by recurring anxiety. (Bloomberg)
“From about the age of 12, I knew I wanted to be a banker”. That’s apparently a more common thing for a teenager to say in Switzerland than in other countries. But the apprenticeship programs that produced Sergio Ermotti are not as popular as they used to be. (Swissinfo)
Managers (like Larry Fink) who expect huge productivity gains from generative AI might be disappointed. Not only are the actual gains being seen in research at present somewhat unimpressive, using AI tools seems to actually decrease the productivity of top employees. (HBR)
At some point, Hamza Lemssouguer will be successful enough to be referred to as “Arini Capital founder” rather than “former Credit Suisse trade”. But despite 32% returns in his main fund and 27% returns in the other fund he launched in May, this is not yet that year. (Bloomberg)
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