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.
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Morgan Stanley (NYSE:MS) rose 1.54% or 0.52 points on Monday and made its way into the gainers of the day. Goldman Sachs and Deutsche are some of the other banks that have already shrunk their fixed income businesses.
The possible job cuts show that Morgan Stanley is somewhat accepting the slowdown in client activity which has been seen during the summer months and believe that it might not reverse soon enough. Its return on equity has languished below the 10% mark for long, much to the concern of many investors.
Morgan Stanley has previously shown an interest in decreasing the size of its fixed-income business due to a decrease in trading.
Morgan Stanley has also come under pressure from shareholders since peaking in July, with its equity returns being held below a 10% target threshold previously set by James Gorman, Morgan Stanley’s Chairman and Chief Executive.
Local-currency bonds can rise 3.7 percent in 2016, after declining 25 percent over the past three years, the New York-based bank forecasts.
The fixed-income business has been shrinking. In June 2014, Galileo Japan Trust announced that Morgan Stanley and its subsidiaries has ceased to be the substantial holder of the Company.
Cost reduction, including cutting bonuses and jobs, is seen as an option for bolstering returns.
The last quarter “was clearly very weak, and I don’t think Q4 is going to be much better”, Mr. Kelleher said during a November 17 conference with investors.
In the meetings, some shareholders pressed Morgan Stanley executives to explain the October 1 promotion of Mr. Pick, the firm’s head of equities, to run all of trading.
“What I don’t know yet is: What is the steady run rate of what we think fixed income should be? But clearly, you have to adjust in accordance with market conditions for the foreseeable future”.
While cuts across the division will be firmwide, The Wall Street Journal reports that the job losses in London will be slightly higher than in NY. But importantly, those two firms were also the two strongest performers this year compared to last year.
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It is still unclear whether the bank will move to make the corresponding cuts to its balance sheet, a move expected to free up more capital. The firm has already sharply cut the capital it allocates to the fixed-income business.
