Morgan Stanley joined the legions of financial firms beating a retreat amid tumultuous markets and economic uncertainty, setting plans to cut 1,600 jobs.
The cuts, announced Thursday, amount to 2.6% of the New York securities firm's work force and represent an about-face after a postcrisis hiring push. Morgan Stanley made 400 hires starting in late 2009 in a bid to bolster its trading business, which at the time was a source of big profits for financial firms.
Morgan Stanley's layoffs will be spread globally across all job levels. They represent the largest cutback for the company since late 2008 and early 2009, when it laid off more than 2,500 employees in the midst of the financial crisis. A spokesman said the layoffs would follow Morgan Stanley's "year-end performance-management process" and its evaluation of the "right size of the franchise."
It isn't clear how many of the 1,600 employees will receive bonuses, which account for a large portion of many workers' compensation. Wall Street firms typically inform workers of bonus decisions in December before making the payouts early the next year. Those fired at the end of a year usually don't get a bonus. The cutbacks could help Morgan Stanley reduce compensation expense in coming periods at a time when revenue is under pressure.
Wall Street's profits have been hit by volatile markets and customer indecision driven by questions about the global growth outlook. Barclays Capital analyst Roger Freeman on Thursday cut his earnings estimates for Morgan Stanley and rival Goldman Sachs Group Inc., saying that industrywide, "investment-banking revenue is expected to post its weakest quarter since the first quarter of 2009 with trading businesses not far behind."
Fitch Ratings on Thursday downgraded banks including Goldman Sachs and Bank of America Corp., citing the "increased challenges the financial markets face," while ratings firm Standard & Poor's said a lackluster U.S. economy could spell hard times for banks.
We believe the U.S. banking industry is undergoing its most radical structural change since the Great Depression," said Standard & Poor's credit analyst Rodrigo Quintanilla.
Facing sagging revenue and tightening regulatory requirements, banks have been cutting back. This year, 24 financial firms around the globe have cut or announced plans to cut 103,000 jobs, according to an analysis by The Wall Street Journal.
"Certainly head counts are on the way down," said Sandler O'Neill + Partners analyst Jeff Harte. He said he expects to see bank staff levels fall 2% to 3%, back to where they were after the firms stopped cutting staff following the 2008 crisis.
Bank of America and HSBC Holdings PLC both said in recent months they each would eliminate 30,000 jobs over coming years. Citigroup Inc. said this month that it will reduce staff by 4,500. Crédit Agricole AG of France said on Wednesday that it would cut 2,350 jobs, three-quarters of them at its corporate and investment bank, and pull out of 21 countries in which it has an investment-banking presence.
Though financial firms have been making cuts in all businesses, investment banking and trading operations especially have been hit hard. This fall Bank of America cut about 400 positions in its investment-banking and trading unit, and early next year it expects to announce the elimination of more investment-banking positions as part of a broader company retrenchment that began this year.
Citigroup's cuts include 900 at its securities and trading unit. The reduction at the trading business reduced staff there by roughly 5%, three times as deep as the cut taken across Citi's global work force.
The deeper cutbacks reflect factors including the high pay of staffers in investment-banking and trading units. Morgan Stanley's cuts will include some investment bankers and their staffs. The firm said the cuts will have less impact on areas such as its equities division, where revenue has climbed this year despite turbulent market conditions.
Trading-unit layoffs will be focused on some capital-intensive, fixed-income businesses such as securitization, structured credit and related areas including correlation trading units, where new rules coming into force will make Morgan Stanley hold more capital.The cutbacks come as sluggish Western economic growth and the European debt crisis weigh on investor sentiment, reducing demand for the trading and advisory services banks provide for investors and corporate clients.
Mr. Harte, of Sandler O'Neill, said he believe the cuts won't exceed 3% or so, because "investment-banking backlogs are strong," meaning additional revenue still is attainable if lawmakers resolve the European debt crisis and finalize new regulations for the banking industry.
Yet the urge to cut is clear. Even banks that have said they aren't planning broad staff reductions are pulling back where they can.
J.P. Morgan Chase & Co. has cut about 1,000 workers from its investment bank, which had 26,615 workers at the end of the third quarter. "We expect to see the head count going down, but no major layoff programs," CEO James Dimon said in October.
Executives at Wells Fargo & Co. have repeatedly said they aren't planning big, firmwide layoffs, preferring instead to cut its use of temporary workers, trim vendor contracts and consolidate lines of business. Wells Fargo's staff dropped by 2,800, or 1%, during the third quarter.
"This 10% across-the-board thing, it doesn't stick," Chief Administrative Officer Patricia Callahan said in an interview last month. "Companies can reduce [staff], but then the work piles up. An across-the-board cut is a short-term cost gain; it doesn't fundamentally improve your economics."
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