Morgan Stanley, the investment bank that saw bond-trading revenue plunge 42 percent in the third quarter, is planning a significant reduction in its fixed-income staff, according to people with knowledge of the plans.
The cuts, which could total as much as a quarter of fixed- income trading employees, will be across all regions and are set to take place in the next two weeks, said two of the people, who asked not to be identified because the decision hasn’t been publicly announced. Hugh Fraser, a spokesman for the New York- based bank, declined to comment.
Morgan Stanley last month reported what Chief Executive Officer James Gorman called its worst quarter for fixed income, currencies and commodities since he took over in 2010. While the financial industry may finally be reaching the end of a years- long slide in that business, it still isn’t clear how much revenue it’ll typically produce after stabilizing, Colm Kelleher, head of the investment banking and trading division, said at a Nov. 17 investor conference.
“The trick for us is to size our business appropriately to what we think the fee pool is,” he said at the conference. While trying to gauge that, the investment bank needs to keep the unit “credibly sized” to complete globally, and “make sure we have enough flex or leverage that when the markets recover, which we do think they’ll recover, you’ll be able to participate in the upside of that,” he said.
Gorman last month placed Ted Pick, who has led the equity- trading business, in charge of the entire trading division. While Morgan Stanley has reduced the capital that its fixed- income unit requires by more than half over the past four years, the bank still hasn’t reached its goal of a return on equity of at least 10 percent.
Stiffer capital rules, a slump in client transactions and a shift toward electronic trading have crimped margins in key fixed-income markets, pushing banks to pull back and eliminate staff. Kelleher said last year that the new supplementary leverage ratio made banks unable to earn sufficient returns in some interest-rate trading businesses.
The withdrawal has been particularly severe in Europe, where firms including UBS Group AG, Deutsche Bank AG and Barclays Plc have sought to shrink their operations to rein in costs.
Revenue from fixed-income, currency and commodities trading, or FICC, is on pace to drop to $65 billion this year at the 10 largest global investment banks, according to industry analytics firm Coalition Ltd. That would be the lowest since the financial crisis and less than half of what those firms produced in 2009.
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