Morgan Stanley plans to slash 1,600 jobs in what may be just the beginning of a new round of layoffs at large investment banks, this time driven by a deeper reassessment of Wall Street businesses in the face of new regulations and capital standards.
Morgan Stanley, the sixth-largest US bank by assets, plans to begin letting go of the employees, many of whom work in its securities unit, starting this week, two people familiar with the matter said on Wednesday.
A third person who has been involved with plans to cut staff at Morgan Stanley and other large banks said that Morgan Stanley's cuts had been in the works for months, and that more are expected in the future.
Large global investment banks have been cutting staff for the better part of five years, when the financial crisis pegged to the US housing market began to seize up markets.
Firms previously focused their job cuts on areas where activity had screeched to a halt, such as securitisation of mortgages, or that were explicitly banned by new regulations, such as proprietary trading.
But banks are now making strategic decisions about businesses in grey areas where management teams do not see major profit potential, or realise that their individual banks are not competitive, the third source said.
"It's hard to look at yourself in the mirror, and say: 'I'm not good at this,'" said the source. But now that management teams are coming to those realisations, he said, they are beginning to make strategic decisions to exit businesses and cut more staff.
So far, the most prominent example of a bank making that kind of a tough decision is Swiss bank UBS, which said in October that it would exit bond trading altogether and eliminate 10,000 jobs.
Morgan Stanley has said it will not give up on the fixed income, currency and commodities trading business, known as "FICC" in Wall Street circles. The firm has said it wants to boost market share in FICC by two percentage points.
But Morgan Stanley is aiming to exit more complex realms of bond trading that require more capital under new regulations.
The latest staff reductions will affect 6 per cent of the institutional securities unit's workforce, which includes the bank's FICC business. The cuts will target salespeople, traders and investment bankers, the sources said. Support staff who work in areas such as technology will also be affected, the sources said.
Although all staff levels will be affected, the likely targets will be more senior employees who take in the biggest paychecks, and about half of the cuts will come from the United States, one of the sources said.
The cuts are also notable because, unlike its chief rival Goldman Sachs, which culls the bottom 5 per cent of its workforce each year to improve performance, Morgan Stanley does not have such a staff reduction program.
Some analysts have questioned Morgan Stanley's plans to gain market share in the bond trading business.