Morgan Stanley MS plans to cut around 1,200 jobs, including 470 traders and salespeople in its fixed-income, currencies and commodities (FICC) unit and the remaining reductions in infrastructure and support staff for the unit from offices all over the world.
The move comes on the heels of stringent capital regulations, lower client activity and a shift toward electronic trading, which led to the underperformance of the FICC business, compelling the bank to cut back jobs.
The job cuts are expected to result in a severance charge of about $150 million in the fourth quarter. However, cost savings to be achieved by this move were not revealed with more details expected to come forward in the bank’s January update.
This 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," said an internal memo from Colm Kelleher, head of the institutional securities business, and Ted Pick, head of global sales and trading.
Moreover, Morgan Stanley is said to close most industrial metals trading desks globally along with a reduction in workforce. While certain jobs in precious metals and energy markets are also expected to be laid off, the bank will likely keep trading in these areas to improve profitability.
Bloomberg was the first to report Morgan Stanley’s plan to slash nearly 25% workforce at its fixed income division last week.
As 2015 begun on an optimistic note for Morgan Stanley, the company executives projected a rise in market share for fixed income division over time, given the exit of several European peers including UBS Group AG UBS, Deutsche Bank AG DB and Barclays PLC BCS, as well as the company’s credit rating upgrade. However, slowdown in China along with several other global concerns led to low level of client activity mainly in FICC.
Notably, Morgan Stanley reported a 42% drop in bond trading during the third quarter of 2015 (worst performance since the 2008 financial crisis). Though fixed income results were strong in the first half of 2015, the third-quarter slump more than offset this positive.
Further, during an investor conference on Nov 17, Colm Kelleher, head of the investment banking and trading division, stated that third quarter “was clearly very weak, and I don’t think Q4 is going to be much better.”
Additionally, as per industry analytics firm Coalition Ltd., FICC revenues will likely drop to $65 billion in 2015 at the top 10 global investment banks. At the same time, we believe that stringent capital rules and a shift in investor preference toward electronic trading have cut margins in fixed income trading operations.
Though Morgan Stanley has slashed the capital allocated to fixed income operations, fall in revenues is making the division less profitable. Hence, controlling expenses (by reducing bonus payment or cutting staff) is expected to boost profitability.
Currently, Morgan Stanley holds a Zacks Rank #5 (Strong Sell).
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