Morgan Stanley prepared the ground for 1,600 job cuts on Wednesday after what has been regarded as a tricky year for the financial services industry and as thousands of bankers prepare to receive their annual bonus cheques.
The job cuts will hit the institutional securities business inside Morgan Stanley, which is scheduled to report its full-year results next week – when a flurry of major employers on Wall Street and in the City will publish their figures for the year, including the highest profile of them all, Goldman Sachs.
Broadly, bonuses are expected to be down – possibly by as much as 50% in some London-based banks, where the boardrooms are under pressure to pare back rewards for staff following the "shareholder spring". That is not to say that some staff will not take home bumper payouts, particularly as deferrals from previous years kick in.
UK and continental European banks, particularly Barclays, which is already undertaking a review of investment banking business in the wake of the Libor-rigging scandal, are facing pressure from investors who want a fairer share of the spoils.
In addition, the Financial Services Authority is making it clear to the remuneration committees of the major banks that they need to ensure bonuses reflect the scandals that have further damaged the image of the City. The past year has seen a wave of scandals – not only Libor rigging, but multimillion-pound fines for Standard Chartered and HSBC from the US regulators for breaching sanctions and money laundering respectively. The high street banking arms could be affected, given the rising bill for compensating customers for payment protection insurance mis-selling, which has topped £11bn and could double.
Robert Talbut, chief investment officer at Royal London Asset Management, said: "Profits are better, but the share going into remuneration has to come down further and has to reflect the other issues which have come up over the last few months. All the banks are alive to the need to take account of these issues."
The regulators also want banks to hold more capital following the 2008 banking crisis. Ian Gordon, analyst at Investec, said: "In general terms another tough year is the general mantra."
Tough is relative. Data published by the major banks last month for 2011 – a year delayed – and analysed by the Guardian shows that the top 1,500 bank staff in the UK received an average of £1m for the year – although this was down on the previous year.
The first bonuses in the City are traditionally handed out by the Wall Street firms – JP Morgan, Goldman Sachs and Morgan Stanley among them – with the UK and continental European banks following in February and March. City sources believe that bonuses at Goldman Sachs, which is expected to disclose payouts to staff shortly after next week's results, may weather the pressure for restraint better than others and may even rise this year.
Around 350 of the Morgan Stanley job cuts are likely to fall in London, while 3,000 of the 10,000 jobs already being axed at Swiss bank UBS – a swingeing level of cuts, which one City source said had set the tone for the 2012 bonus round – will also hit London. "The buzz phrase is 'external environment'," the source said. "If you can go and get a better deal elsewhere, then go."
Another said: "It will be a year of recalibration for the industry." While some bankers will feel they have had a good year, "they've chosen a bad year to do it", he said.
Deutsche Bank, which employs 8,500 people in the UK, has also signalled job cuts and admitted that investors were putting banks under pressure to restrain pay.
From a UK perspective, much of the focus is on Barclays. The bank paid out £1.2bn in bonuses in 2011 and £700m in dividends to shareholders – a split that investors do not want to see repeated.
The bailed-out banks will also be under the spotlight, although Stephen Hester, the chief executive of Royal Bank of Scotland, has already attempted to avert the focus on himself by waiving his 2012 payout following the IT meltdown in the summer. Even so, some £700,000 deferred from previous years will pay out to him in March.
It is not yet clear what payment will be made to António Horta-Osório, his counterpart at Lloyds Banking Group. Staff at both banks have some grounds to take comfort though. Those who receive shares in addition to the traditional £2,000 cap on cash payouts will, as usual, have their share-based payments deferred to June – by which time the top rate of income tax will have fallen from 50% to 45%.
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