As Morgan Stanley aims to improve its profitability, the company reduced its fixed-income workforce to about 25 percent and will take a severance charge of about $150 million in the fourth quarter. The charge will reportedly cover the cost of cutting 1,200 workers worldwide, including about 470 traders and salespeople in its fixed-income and commodities business as well as 730 back-office jobs such as human-resources and IT positions.
Since Morgan Stanley has been struggling in trading after it had been struck by a slowdown in client activity and trading revenue that took ground during the market mayhem of last summer, the multinational financial services corporation slashed 1,200 jobs globally. According to CNN Money, the move will result in businesses that are "critically and credibly sized for the current market," as said by the company to its employees in a memo on Tuesday.
"[The job cuts] will result in businesses that are critically and credibly sized for the current market, while maintaining the ability to deliver for our clients across products and geographies," Morgan Stanley International CEO Colm Kelleher and Ted Pick, who was placed in charge of the trading unit in October, wrote in a memo to employees Tuesday, as per Bloomberg Business. "It is difficult to see colleagues depart, and we wish them well in their continuing careers."
In the third quarter, Morgan Stanley alarmed investors by disclosing a 42 percent drop in fixed-income trading revenue. The company's shares have also taken 12 percent plunge so far this year, compared with smaller declines for rivals Goldman Sachs (GS) and Bank of America (BAC). Shares of JPMorgan Chase (JPM), on the other hand, increased for 6 percent in 2015. Fortunately, parts of Morgan Stanley's business are holding up better than fixed income such as the firm's jump in advisory revenue last quarter due to strong mergers and acquisitions (M&A) activity. Even so, the job cuts suggest Morgan Stanley isn't expecting an immediate rebound.
"The outlook is not great," Kelleher told analysts at a recent conference. Kelleher repeatedly mentioned the "subdued" capital markets activity worldwide, saying the firm's fixed-income performance is unlikely to improve after a "very weak" third quarter.
Meanwhile, Morgan Stanley spokesperson Mark Lake confirmed that the company plans to take a $150 million charge in the fourth quarter to cover one-time expenses, including benefits and severance payments. However, cost savings are expected to exceed the said charge though it remains unclear how much revenue the firm will reliably produce after stabilization.
In other news, Morgan Stanley announced that former Chancellor Alistair Darling will join the bank's board of directors. BBC News revealed 62-year-old Darling, who served as the Chancellor of the Exchequer from 2007 to 2010, will assume the role in January. His move follows former Prime Minister Gordon Brown's appointment to an advisory panel at Pimco, a global investment firm.
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