Morgan Stanley CEO James Gorman Says Banking Industry is 'Overpaid'

Oct. 5, 2012 — -- Morgan Stanley CEO James Gorman has folks in the banking sector buzzing with his comments that the industry is "still overpaid."

"There's way too much capacity and compensation is way too high," Gorman told the Financial Times. "As a shareholder I'm sort of sympathetic to the shareholder view that the industry is still overpaid."

A spokeswoman for Morgan Stanley declined to elaborate or make Gorman available for comment. Gorman's doing pretty well though. He received a $10.5 million pay package in 2011, a pay cut of 25 percent from 2010. He was the 23rd highest-paid CEO in America last year, according to Bloomberg Markets Magazine.

Earlier this year, Deutsche Bank co-chief executives Anshu Jain and Juergen Fitschen said compensation reform was one of their three key objectives.

Gorman's comments come a week before the major U.S. banks report their third-quarter earnings. JPMorgan Chase and Wells Fargo will be the first with their earnings releases next Friday, Oct. 12.

Back in July, Morgan Stanley reported a 50 percent drop in its second-quarter earnings to $591 million. The company reported revenue had dropped to $6.95 billion from $9.21 billion the prior year.

Brian Foley, pay consultant and managing director of Brian Foley & Co. in White Plains, N.Y., said with little evidence in the financial markets that the tide has turned, Gorman's comments seem somewhat foreboding.

"My sense is that what's coming in the third quarter is likewise not going to be pretty or even uglier," he said.

Anthony Polini, analyst with investment firm Raymond James, said he agreed with Gorman that there are too many banks in the U.S., but he disagreed that the banking industry as a whole is underpaid.

"The banking industry is overregulated, not overcompensated," Polini said.

Although, Polini conceded, it depends which industry one uses as a comparison.

Comparing to professional athletes and film stars would make most bankers look like they got the short end of the stick, he said.

By international standards, Polini said executives at Bank of America, the second-largest U.S. bank measured by assets, are not overcompensated. Its CEO, Brian Moynihan, receives compensation of $8.1 million, which includes a salary of $950,000, $6.1 million in performance-based stock, $420,000 worth of tax and financial advice and use of the company's aircraft.

"It's all who you compare them to," he said. "I'll take a stand and say I think teachers should make a lot more money."

Polini also points out that the large number of U.S. banks, approximately 7,000 which are dominated by a handful of national corporations, could mean greater competition and choices for consumers.

"Excess capacity is a bad thing on one hand, but if you're looking for a low-interest bank or convenience, even if you live in the suburbs, you probably don't have to drive to a bank," he said. "You could probably walk to one."

Low interest rates have been negatively affecting banks, but Polini said he expects banks to report positive quarterly earnings in terms of commercial loan growth and mortgage banking.

"It doesn't mean that the outlook is going to get much better. We still have a weak economy and a low-interest rate environment," he said.