New capital rules have penalized big banks for holding vast inventories of bonds and other debt securities, forcing them into hard decisions on how big their trading businesses can remain in the postcrisis era. 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.
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Sagging earnings and equity returns are not the only forces hurting Morgan Stanley’s outlook.
Investors apparently agree. Shares of Morgan Stanley have gained.5% to $34.82 at 10:19 a.m. today, while Goldman Sachs (GS) has ticked up 0.1% to $190.17, JPMorgan Chase (JPM) has risen 0.7% to $67.15, and Bank of America (BAC) is up 0.7% at $17.56.
Morgan Stanley has an analyst consensus of Moderate Buy, with an average price target of $38.33.
The move by Morgan Stanley comes after reporting years of insufficient returns and declining revenue in the fixed income division. Logistically, these job cuts will see a full exit from no less than ten countries, including Argentina, Chile, Mexico, Uruguay, Peru, Denmark, Finland, Norway, Malta and New Zealand.
Numerous industry’s leading banks have all shrunk their fixed-income business in some capacity since the global financial crisis in 2007-8. Such measures have continued to contract the market, leaving executives and firms with a challenging situation, which might prove to be a short-term slowdown by reducing their labor force.
Last month, Deutsche Bank moved ahead with a dramatic shift in its operations that will ultimately see a reduction of its global workforce by almost 9,000 full-time jobs by 2020, in addition to 6,000 external contractor positions that are also slated for extinction, largely in London.
The year started well for debt traders at Morgan Stanley, and across Wall Street.
“The trick for us is to size our business appropriately to what we think the fee pool is”, he said at the conference.
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Interestingly, Morgan Stanley wasn’t the only financial institution to witness a downtrend in the trading revenue. The news, reported first by Bloomberg, follows a third quarter that saw the investment bank’s bond-trading revenues fall 42 percent year over year.
