Morgan Stanley Follows Trend of Other Banks in Laying Off Staff

Demonstration through downtown Detroit from the Occupy Detroit site at Grand Circus Park On October 18, 2011. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.

January 9, 2013 8:00 pm

Morgan Stanley cuts target senior staff

By Tracy Alloway in New York
Financial Times

Morgan Stanley is to cut 1,600 jobs in one of its most prominent businesses in the latest example of a Wall Street investment bank axing staff to reduce expenses.

The job cuts amount to about 6 per cent of the total headcount in the bank’s institutional securities group, which helps companies complete big mergers and acquisitions and also trades bonds and stocks on behalf of clients.

About half the 1,600 job cuts will be made in the US, the bank said.

James Gorman, Morgan Stanley chief executive, told the Financial Times in October that there was “way too much capacity and compensation is way too high” in the banking industry. The FT reported then that the investment bank was preparing more pay and job cuts in early 2013 in its effort to reduce costs.

The cull announced on Wednesday comes on top of the 4,000 jobs Morgan Stanley jettisoned last year and is the latest in a series of lay-offs made by Wall Street banks. Citigroup said this week that it had dismissed the chief investment officer of its private bank, as part of a planned reduction of 11,000 jobs at the company.

Other big investment banks, including Credit Suisse, Deutsche Bank and UBS, have also cut back on staff in recent months, as they collectively cope with new regulations that limit their traditional profitmaking activities and quieter markets.

Morgan Stanley’s institutional securities business “is suffering from an underperforming fixed income business, cyclical declines in investment banking and secular challenges associated with Dodd Frank’s Volcker rule and Basel III capital regulations,” said Brad Hintz, banking analyst at AllianceBernstein.

The investment bank will notify those affected by the job cuts in the coming days and weeks, a spokeswoman said. The casualties will be spread across the unit’s various businesses – including fixed income, equities, research and traditional investment banking such as bond underwriting and M&A activity.

The redundancies will also include a large slice of highly paid senior bankers from the ranks of Morgan Stanley’s managing directors and executive directors.

Until recently Morgan Stanley’s institutional securities business was run by two co-heads; Colm Kelleher in London and Paul Taubman in New York. Mr Taubman resigned at the end of last year after a fraught two-year partnership.

In his October interview, Mr Gorman suggested that job losses would play a part in cost-cutting at Morgan Stanley. Pay and bonuses for bankers will “come down because the amount of people in the business comes down”, he said.

Even with the additional cost-cutting, Morgan Stanley is targeting a much more modest return on equity than the pre-crisis levels of as much as 23 per cent. Return on equity is a key measure of a bank’s ability to make money for its shareholders.

“We’re generating 5 per cent, can we get back to 10 per cent? That’s much more interesting to me than can we get back to 15 per cent or will we ever get back to the glory days – those are completely flawed anyway,” said Mr Gorman.

The bank reports its fourth-quarter earnings next week, when it is expected to report a return on equity of 3 per cent, according to analyst estimates compiled by Bloomberg.