* To cut 1,600 jobs related to securities unit
* More Wall St job cuts expected, focus of cuts shifting
* Low-profit, non-competitive areas seen targeted for cuts
By Lauren Tara LaCapra
Jan 9 Morgan Stanley plans to slash 1,600
jobs in what may be just the beginning of a new round of layoffs
at large investment banks, this time driven by a deeper
reassessment of Wall Street businesses in the face of new
regulations and capital standards.
Morgan Stanley, the sixth-largest U.S. bank by assets, plans
to begin letting go of the employees, many of whom work in its
securities unit, starting this week, two people familiar with
the matter said on Wednesday.
A third person who has been involved with plans to cut staff
at Morgan Stanley and other large banks said that Morgan
Stanley's cuts had been in the works for months, and that more
are expected in the future.
Large global investment banks have been cutting staff for
the better part of five years, when the financial crisis pegged
to the U.S. housing market began to seize up markets.
Firms previously focused their job cuts on areas where
activity had screeched to a halt, such as securitization of
mortgages, or that were explicitly banned by new regulations,
such as proprietary trading.
But banks are now making strategic decisions about
businesses in grey areas where management teams do not see major
profit potential, or realize that their individual banks are not
competitive, the third source said.
"It's hard to look at yourself in the mirror, and say: 'I'm
not good at this,'" said the source. But now that management
teams are coming to those realizations, he said, they are
beginning to make strategic decisions to exit businesses and cut
So far, the most prominent example of a bank making that
kind of a tough decision is Swiss bank UBS AG, which
said in October that it would exit bond trading altogether and
eliminate 10,000 jobs.
Morgan Stanley has said it will not give up on the fixed
income, currency and commodities trading business, known as
"FICC" in Wall Street circles. The firm has said it wants to
boost market share in FICC by two percentage points.
But Morgan Stanley is aiming to exit more complex realms of
bond trading that require more capital under new regulations.
The latest staff reductions will affect 6 percent of the
institutional securities unit's workforce, which includes the
bank's FICC business. The cuts will target salespeople, traders
and investment bankers, the sources said. Support staff who work
in areas such as technology will also be affected, the sources
Although all staff levels will be affected, the likely
targets will be more senior employees who take in the biggest
paychecks, and about half of the cuts will come from the United
States, one of the sources said.
The cuts are also notable because, unlike its chief rival
Goldman Sachs Group Inc, which culls the bottom 5 percent
of its workforce each year to improve performance, Morgan
Stanley does not have such a staff reduction program.
Some analysts have questioned Morgan Stanley's plans to gain
market share in the bond trading business.
JPMorgan analyst Kian Abouhossein - who earlier said that
Morgan Stanley should give up that goal - expects Wall Street
banks to report a 10 percent decline in revenue for the fourth
quarter, compared with the previous period.
Bernstein Research analyst Brad Hintz, a former Morgan
Stanley treasurer, said in a report on Wednesday that layoffs
are expected in capital-intensive areas of Morgan Stanley's
fixed-income trading business, such as asset-backed
securitization, synthetic products, structured credit and
"Investors continue to wonder how Morgan Stanley's fixed
income business will be able to generate steady returns and beat
its cost of capital without massive changes to its business
model," Hintz said.
RESTRUCTURING WALL STREET
Morgan Stanley Chief Executive James Gorman has pledged to
cut costs, and said in July that he planned to reduce overall
staff 7 percent in 2012. The new job cuts are in addition to
that plan, the sources said, and come just a week after Colm
Kelleher took over as the sole president of the securities unit
on Jan. 1.
The cuts represent less than 3 percent of Morgan Stanley's
entire estimated workforce at year-end, following other staff
reductions in 2012.
"This continues the steady drumbeat of negative news from
banks," said Greg Cresci, a Wall Street recruiter with New
York-based Odyssey Search Partners. "It's hard to tell where the
bottom is, given how many banks have made similar
Altogether, U.S. financial firms announced plans to reduce
payrolls by 38,135 jobs last year, in addition to 63,624 job
cuts that were detailed in 2011, according to employment
consulting firm Challenger, Gray & Christmas.
"We are seeing a redrawing and restructuring of the
industry," said John Challenger, CEO of the firm. "The map
continues to be redrawn in terms of regulation, who the
competitors are, and the resources banks are willing to commit
to the investment banking business."
In addition to earlier job cuts at Morgan Stanley and UBS,
Goldman Sachs cut 700 jobs during the first nine months of 2012
as part of a plan to reduce annual expenses by $1.9 billion.
Citigroup Inc announced plans last month to cut 11,000
jobs, including some in investment banking and trading, to save
$1.1 billion in annual expenses. Credit Suisse Group AG
is also cutting securities jobs to reach an annual
cost-savings target of 1 billion Swiss francs ($1.1 billion),
while Bank of America Corp is in the process of cutting
30,000 jobs across the firm in a plan unveiled in 2011 to save
$5 billion in annual expenses.
Morgan Stanley shares fell 0.2 percent to close at $19.62 on
Wednesday. Its shares are up 15 percent over the past 52 weeks,
part of a broad rally in financial stocks.