Morgan Stanley Faces Inquiry For Junior Team in Hungary
BY ALEXANDER SAEEDY
A new cohort of young Morgan Stanley investment bankers showed up two years ago to their first day of work at a beige office building off the east bank of the Danube River in Budapest.
The bank had recruited them from across Europe to work out of the Hungarian capital for a chance to be promoted to the big leagues in New York or London. Some of them worked into the morning hours several days a week to support teams in the U.S., six time zones behind them.
For the bank, it was a way to move jobs offshore and hire cheaper labor to carry out the drudgery that well-paid young investment bankers typically do in their first years on the job: building financial models, formatting pitch decks and occasionally helping execute bigticket transactions.
Now, the Financial Industry Regulatory Authority in the U.S. has opened an inquiry about what kind of work the Budapest bankers were doing, how much contact they had with clients and how they were supervised, people familiar with the matter said. The probe is at an early stage, the people said.
A former employee had contacted the regulator as a whistleblower, the people said, alleging those in the program lacked the proper licenses that work would have required. The whistleblower said the bank violated rules meant to protect confidential information about clients and transactions from being mishandled.
Morgan Stanley and Finra declined to comment.
The probe follows other tension inside the office, where some staff objected to working all hours of the night to support colleagues across the Atlantic Ocean while earning less, the people said. And Morgan Stanley has walked back the promise of transfers to the home offices, prompting several other analysts to quit.
Morgan Stanley has expanded the group to around 40 analysts since it launched in 2024, and four hires have been told they are moving to the mother ship.
Still, the growing pains show how investment banks are seeing mixed results as they look to cut costs and adapt how they hire young professionals out of college.
The offshoring of back-office jobs to support bankers on Wall Street has been going on for years. JPMorgan has more than 1,500 people working in support roles in India, Argentina and elsewhere for investment bankers. And Morgan Stanley already has teams helping to create PowerPoint presentations in places such as India and the Philippines.
But those workers aren’t typically allowed to carry out financial analysis and are viewed as support staff.
In Budapest, Morgan Stanley took the idea one step further, moving front-office jobs that typically go to graduates of top universities in cities such as London or New York. Much of the early-career work for investment bankers can now be done from a computer anywhere in the world, giving Morgan Stanley a shot to catch up with competitors that appeared to have more successfully moved their staff abroad.
Other investment banks have experimented with staffing their jobs abroad with mixed results. Citigroup opened an office for junior bankers in southern Spain in 2022, paying them less but promising them an easy worklife balance. It closed last year.
A rite of passage to a career on Wall Street, working as a young investment banker has seen many of its vaunted perks scaled back over the years. Banks are under pres--surefrom investors to do more with less, and labor is often among their highest costs. Banks have also added artificial-intelligence tools to make their junior teams leaner and less expensive.
Morgan Stanley’s program in Budapest started small in the summer of 2024 when a cohort of seven young professionals from several European countries were hired as investment banking analysts. Hiring managers said they would be able to relocate to Morgan Stanley’s prestigious investment bank in New York or London after around two years on the job subject to good performance, people familiar with the program said.
The first crop of analysts in the program took home around 1,500 euros a month, equivalent to $1,750, about one-third to one-half of what analysts make in the home offices, though the cost of living in Budapest is lower. (The pay has since moved closer to €1,700 a month for most new hires.)
The young analysts in Budapest have similar roles and responsibilities to their peers in London and New York: working on pitch decks to help win the bank business and live deals to help clients raise capital or buy companies. They work the same hours as their counterparts, meaning that analysts supporting the New York office often toiled between 1 p.m. and 7 a.m. local time, according to timestamped messages reviewed by The Wall Street Journal.
But unlike their colleagues in London and New York, the Budapest analysts work in a regulatory gray area. Regula--tors in both the U.S. and U.K. require that anyone engaged in investment banking pass exams and be licensed to work on sensitive, multibillion-dollar transactions, with limited exceptions for clerical work. The Hungarian investment bankers weren’t required to take such exams, the people said.
The bank made clear in a 2024 memo to staff that the Budapest analysts “are not licensed to undertake any regulated activities,” including direct contact with clients and any handling of know-yourcustomer processes.
But the rules weren’t properly enforced, the people said.
For instance, they were regularly assigned tasks handling know-your-customer due diligence, the people said. One analyst received a scan of the passport of the chief executive of a prominent hedge-fund manager as part of a client onboarding process for a transaction.
In client pitch decks, the analysts were listed as employees on the New York and London teams, sometimes designated with flags of the U.S. and U.K. More recently, another analyst traveled to meet a client based in Europe, people familiar with the matter said.
Morgan Stanley put limits on hours worked for young employees after the death of a 35-year-old banker at Bank of America in 2024, reflecting longstanding concerns about how much pressure young employees on Wall Street face to be productive from their bosses. But the teams in Budapest and those in the home offices often didn’t follow those guidelines, people familiar with the program said.
The Budapest analysts would sometimes push back against their counterparts in the U.S. when asked to work past 7 a.m. on nonurgentwork, according to messages reviewed by the Journal.
In one message around 6:30 a.m., an analyst asked if he could stop working on a pitch deck since it was already morning in Budapest. A more senior banker in the U.S. asked if he had been given permission to sign off early, insisting there was a hard deadline and the work had to continue.
The lower pay also stoked resentment. When the first seven analysts were hired in 2024, Morgan Stanley’s employee handbook for Hungarian employees specified that, as analysts, they were eligible for overtime pay if they worked more than 40 hours, according to a copy of the handbook reviewed by the Journal.
Morgan Stanley later informed them that the handbook had been updated shortly before they started working. Their role as analysts had been reclassified to the same level as senior managers, meaning they were no longer eligible for overtime pay, those people said.
Then, in the fall of last year, team managers gathered the analysts and told them that relocation to New York or London wasn’t a guarantee, and the minimum time they would have to spend in Budapest had jumped from two years to three, the people said.
If they made it to New York or London, they would start over as an analyst, at the bottom of the totem pole.
Around 20% of the total analyst class quit soon after the announcement.
