This June 26, 2012 photo shows a ticker screen outside Morgan Stanley headquarters in New York. (STAN HONDA / AFP)

SYDNEY/HONG KONG – Morgan Stanley plans to slash investment bankers' annual bonuses by as much as 50 percent in Asia, said two people with direct knowledge of the matter, as the Wall Street firm reins in costs to tackle tough market conditions that have hit its revenue.

The scale of the cuts in Asia could be replicated in Morgan Stanley's US and European operations, and would be in contrast with 2021 when its top bankers earned up to 20 percent more in bonuses globally, said the sources.

A third person with knowledge of the matter said the bonus cuts in Asia for Morgan Stanley are expected to be around 30 percent on average for all its investment banking teams and markets

Bonus payout discussions are currently underway at Morgan Stanley globally, they said.

A third person with knowledge of the matter said the bonus cuts in Asia for the bank are expected to be around 30 percent on average for all its investment banking teams and markets.

The reduced payouts could lead to its bankers' overall compensation in Asia dropping by an average of 30 percent, said the first two sources.

While cuts to bankers' 2022 bonuses have been well anticipated, this is the first time the likely extent of the reductions at the US bank are being detailed.

Bonuses form a significant part of total compensation for bankers, and are usually linked with performances of business units and individuals.

Morgan Stanley, which does not disclose details of bonus payouts, declined to comment. The sources did not want to be identified as the information is confidential.

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Many banks globally are pausing dealmaking activities due to higher interest rates and weak economic prospects, with the US economy heading into a short and shallow recession over the coming year

Many banks globally are pausing dealmaking activities due to higher interest rates and weak economic prospects, with the US economy heading into a short and shallow recession over the coming year.

That has put pressure on earnings of investment banks after they made record profits last year from advising on mergers, acquisitions and initial public offerings as the world emerged from COVID-19-induced restrictions.

Wall Street firms rely significantly on bonuses to hire and retain talent in a competitive business environment, but Morgan Stanley's major rivals are also reportedly cutting bonuses now.

Goldman Sachs Group's bonus pool for senior employees is expected to shrink by as much as half, news platform Semafor reported on Thursday, citing people familiar with the matter.

Citigroup Inc and Bank of America Corp are also considering cutting bonus pools by as much as 30 percent, Bloomberg Law reported earlier this month, citing people with knowledge of the internal deliberations.

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American flags fly outside the New York Stock Exchange, Sept 23, 2022, in New York. (MARY ALTAFFER / AP)

Wall Street firms rely significantly on bonuses to hire and retain talent in a competitive business environment, but Morgan Stanley's major rivals are also reportedly cutting bonuses now

Wall Street investment bankers can expect much smaller bonuses this year as the economy slows, according to projections published last month by Johnson Associates Inc, a compensation consultant in New York.

Exposed to market volatility

Compensation and performance discussions at Wall Street banks typically begin in December, with overall bonus pools finalized by the year-end.

In Asia, the biggest declines in Morgan Stanley's bonuses will be felt in areas including the capital markets businesses which are more exposed to global financial market volatility.

This year's bonus discussions are taking place after Morgan Stanley CEO James Gorman said earlier this month that the bank was making "modest job cuts" worldwide.

Chairman and Chief Executive Officer of Morgan Stanley James Gorman speaks during the Global Financial Leaders’ Investment Summit at Four Seasons Hotel in Hong Kong on Nov 2, 2022. (ANDY CHONG / CHINA DAILY)

In Asia, the biggest declines in Morgan Stanley's bonuses will be felt in areas including the capital markets businesses which are more exposed to global financial market volatility

So far the bank has cut about 2 percent of its workforce, which affected about 1,600 positions, Reuters reported last week.

In Asia about 50 investment banking jobs have been axed this year, said the first two sources. Over 90 percent of those cuts were made in Morgan Stanley's China teams based both onshore and offshore, one of them added.

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MSCI's key Asia-Pacific ex-Japan index has lost about 18 percent this year. 

Morgan Stanley reported a 30 percent slump in third-quarter profit in October, missing analysts' estimate as a slowdown in global dealmaking hurt its investment banking business.