US banking giants reveal bonuses and bad debts

Bonuses and bad debts remained in the spotlight today as more US banking giants revealed how they fared in the year after the Lehman Brothers collapse.

Morgan Stanley - employer of 6,000 UK staff - said it had put aside 14.4 billion dollars (£8.9 billion) for staff compensation and benefits in 2009, an increase of 31%.

The firm posted annual profits of 1.3 billion dollars (£800 million) in the 12 months to December 31, from a loss of 246 million dollars (£151 million) in 2008.

Chief executive and president James Gorman said employees had "delivered substantially improved financial performance" for the bank.

Morgan Stanley, which said its revenue was hurt by an accounting charge resulting from the continuing improvement of credit markets, saw its investment banking operation profit from its Smith Barney joint venture.

Meanwhile, Bank of America Merrill Lynch, which saw customers struggle with mortgage and credit card repayments, reported full-year losses of 2.2 billion US dollars (£1.4 billion) after it repaid the US government's 45 billion dollar (£27.6 billion) bailout.

The bank, which has 12,500 staff in the UK including 5,000 at its MBNA credit card arm, set aside 48.6 billion dollars (£29.9 billion) to cover soured loans in the year - almost double the amount in 2008.

The firm - reporting with the Merrill Lynch business included for the first full year - said overall personnel costs had increased to 31.5 billion dollars (£19.4 billion), from 18.4 billion dollars (£11.3 billion) in 2008. It said staff numbers increased from 240,000 to 283,000 in the period.

Fourth quarter losses of 5.2 billion dollars (£3.2 billion) were described as "disappointing", but the firm said the loss reflected payment of preferred dividends.

It also said results were boosted by strong results from its investment banking operations.

Chief executive and president Brian Moynihan said: "As we look at 2010, we are encouraged by signs the economy is improving, as we have seen in the stabilisation of our credit costs, particularly in the consumer businesses.

"That said, economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth."

The results follow hot on the heels of figures from fellow Wall Street players Citigroup and JP Morgan Chase.

Citi posted an annual net loss of 1.6 billion US dollars (£980 million), down from 27.7 billion dollars (£16.9 billion) in 2008. It made a 7.6 billion dollar (£4.7 billion) shortfall in the fourth quarter after it returned 20 billion dollars (£12.3 billion) of bailout cash to the US government.

Last week, JP Morgan Chase produced forecast-beating results showing profits more than doubling to 11.7 billion US dollars (£7.2 billion).

Credit conditions and staff payouts have dominated attention as most Western economies continue to suffer, while big payouts risk enraging taxpayers who helped buffer the industry with bailouts.

Citi said employee pay and benefit expenses were down 20% compared with the previous year, to 25 billion dollars (£15.3 billion) - although it has reduced its direct headcount by almost 100,000 since the start of 2008.

Meanwhile, the JP Morgan figures revealed bumper pay, bonuses and benefits across the bank as a whole, which rose 18% to 26.9 billion dollars (£16.5 billion) during the year.

In the UK, Chancellor Alistair Darling has unveiled a 50% tax on bank bonuses which is expected to raise more than £550 million - although returns could be greater if banks choose to maintain mega-payouts and stump up the tax.

President Barack Obama has unveiled plans to claw back 90 billion dollars (£55 billion) in taxes over 10 years. He has promised to get back "every dime" for the taxpayer.

UK banks will also be following the US bonus developments keenly, as they face the threat of losing key staff if they do not keep pace with overseas rivals.

The boss of Royal Bank of Scotland - 84% owned by the UK Government - has already admitted to MPs that the bank is "part-prisoner to the market" and will have to pay the going rate to investment bankers or risk a talent-drain.