Morgan Stanley, a multinational financial services corporation, is reportedly laying off 25 percent of the company's fixed-income staff following years of revenue declines and insufficient returns in spite of increasing shares. According to the sources knowledgeable of the plans, the workforce reduction will be across regions and are set to take place in the next two weeks.
Last month, Morgan Stanley reported a 42 percent drop in bond-trading revenue, which Chief Executive Officer James Gorman considered as the company's worst quarter for fixed income, currencies and commodities since he took over in 2010 and during the financial crisis. According to Bloomberg Business, it's unclear how much revenue it'll typically produce after stabilizing and despite the fact that the financial industry may finally be reaching the end of a years-long slide in business.
"The trick for us is to size our business appropriately to what we think the fee pool is," Morgan Stanley's investment-banking and trading division president Colm Kelleher said. "While trying to gauge that, the investment bank needs to keep the unit credibly sized to compete globally, and make sure we have enough flex or leverage that when the markets recover, which we do think they'll recover, you'll be able to participate in the upside of that."
The impending layoffs mirror Morgan Stanley's acceptance that a slowdown in client activity that took root during the summer months may not reverse any time soon, Wall Street Journal noted. The New York-based company also faced pressure from investors to boosts its returns on equity that have often languished below a 10 percent target set by Gorman. And since new capital rules have penalized big banks for holding vast inventories of bonds and other debt securities, companies were forced into difficult decisions on how big their trading businesses can remain during the post crisis period.
"Many investors have been waiting for them to take more drastic action," Nomura Holdings' analyst Steven Chubak. said of Morgan Stanley. "It doesn't suggest they expect a continued decline in the 2015, but it does suggest they don't expect to see a meaningful recovery in the near or intermediate future."
Meanwhile, Morgan Stanley CEO James Gorman has been focusing on equities trading and wealth management as profit drivers for the top 6 U.S. bank by assets as stricter regulations and capital requirements make it more difficult to trade bonds. Last month, Gorman chose Ted Pick, who was in charge of the company's equities business, to oversee its entire trading business to facilitate better coordination between the firm's bond and equities desks, Reuters reported.
Morgan Stanley's shares, however, which have fallen 12.9 percent this year up to Friday's close, were up 2.1 percent in afternoon trading. As for the workforce reduction, the company declined to comment about the report.
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