Morgan Stanley is setting aside a huge sum to pay out bonuses despite posting its third consecutive quarterly loss and admitting it is disappointed with key departments.
The US bank's latest results show it is allocating $3.9bn (£2.36bn) for paying out to staff, 72% of its net revenues. That dwarfs the percentage of revenue set aside by arch rival Goldman Sachs, where workers are on track for large bonuses after record results last week.
Morgan Stanley extinguished the tentative flames of optimism among US banks today when it posted a loss of $159m for April to June and said it was not satisfied with its performance in fixed income trading and in asset management.
News of the bank's loss unsettled traders on Wall Street, whose view of the banking sector's prospects was brightened last week by Goldman's surge in profits and further upbeat news from JP Morgan, Citigroup and Bank of America.
Goldman said last week that it was dedicating 49% of its revenue to paying its staff, amounting to a compensation fund of $6.65bn.
Further reading of Morgan Stanley's results showed its compensation pot was not only much bigger as a percentage of net revenues of $5.4bn, but that it had jumped 26% from $3.1bn a year ago.
"It was a very good quarter to be a Morgan Stanley employee," said analyst Brad Hintz at Sanford C Bernstein & Co. "I'm not so sure it was so good to be a Morgan Stanley shareholder."
Although big bonuses to bankers are arousing controversy in the wake of the credit crunch, bumper payouts seem here to stay as firms continue to battle to attract the most talented staff.
The hefty bonus pot at Morgan Stanley echoes its comments that it needs to woo more top performers to its trading floors.
John Mack, chairman and chief executive, said that it was one way the loss-making bank was "taking steps to deliver better results" in its underperforming departments.
"These initiatives include hiring to add key trading and investment management talent," he said.
The bank was hit in the latest quarter by a charge related to repaying government loans known as Tarp. The disappointing performance from Morgan Stanley was accompanied by downbeat news from San Francisco-based Wells Fargo and tempered optimism about a recovery in the financial sector.
