Poor financial performance is taking its toll on Wall Street investment bank Morgan Stanley (NYSE:MS). As per LeapRate’s earlier report, the bank posted a set of disappointing financial metrics for the third quarter of 2015, including a 42% decrease in fixed-income trading revenues.
The poor trading results will cost hundreds of jobs at Morgan Stanley, with the job trimming to affect the bank’s debt and currencies division, the Wall Street Journal reported on Monday, referring to people with knowledge of the matter.
The report says that the bank is about to slash up to a quarter of the business’s workforce. The cuts will affect all of the division’s offices, and on each of the firm’s trading desks, with London set to bear a bigger brunt than New York, the people said.
The potential trimming reflects Morgan Stanley’s acceptance that a slowdown in client activity registered in the summer months will persist. The company is also under pressure from investors to increase its returns on equity which have been lower than the 10% target set by James Gorman, Morgan Stanley’s chairman and chief executive.
Steven Chubak, an analyst with Nomura Holdings, estimates that Morgan Stanley’s fixed-income arm will register a 5% return on equity this year. Overall, the firm’s return on equity is forecast to be around 9%.
Another factor is that new capital rules have hit big banks for holding large inventories of bonds and other debt securities, pushing them to re-consider the size of their trading businesses.
Colm Kelleher, president of Morgan Stanley’s investment-banking and securities businesses, said in November, the firm is having hard time regarding the size of its fixed-income arm as the pool of trading business up for grabs keeps contracting.
Cost reduction, including cutting bonuses and jobs, is seen as an option for bolstering returns.