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Morgan Stanley props up pay despite reporting loss

Second-quarter red ink from continuing operations is double that expected. But the Wall Street firm sets aside 72% of its revenue -- more than the industry norm of about 50% -- for pay and benefits.

July 23, 2009|Walter Hamilton

Last week, Goldman Sachs Group Inc. recorded spectacular quarterly earnings and set aside a huge sum for employee bonuses.

On Wednesday, Morgan Stanley showed that a poorly performing Wall Street firm also will dish out the largesse.

The big investment bank said Wednesday that it eked out a second-quarter profit of $149 million.

But accounting for dividends that the firm owed on preferred stock turned that profit into a loss on a per-share basis.

And excluding a $319-million gain on discontinued businesses, the company recorded a loss from continuing operations of $1.37 a share -- more than double the 54 cents that analysts expected on average.

The firm's performance has sputtered as the bank has reduced its risk-taking in the wake of the financial crisis.

The shoddy results stood in contrast to the blowout profits reported last week by Goldman and JPMorgan Chase & Co.

But like its crosstown New York rivals, Morgan still has plans to shell out sizable compensation to employees.

The firm earmarked almost $3.9 billion -- or 72% of its $5.4 billion second-quarter revenue -- for pay and benefits.

Normally, Wall Street firms set aside about half their revenue to pay employees. Goldman allocated 48% in the second quarter.

With a larger workforce and less revenue, Morgan's employees will take home far smaller average paychecks than will those at Goldman.

But Morgan's willingness to prop up pay suggests that Wall Street's famously generous bonuses will remain at rarefied levels -- despite the recent public outrage over financial companies' compensation practices.


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