Back to top

Analyst Blog

Morgan Stanley (MS - Analyst Report) is set to retrench jobs from its fixed-income currency and interest rates trading businesses, per a Wall Street Journal report. The slowdown in these business lines with tepid client activity has prompted this unsavory step. The company is likely to cut back on fewer than 100 jobs in its attempt to optimize its front as well as back-office headcount.

Of late, fixed income currency and interest rates trading businesses have been sluggish. The unusually calm market has negatively impacted the trading business. The prices of securities, including stocks and currencies, have witnessed lower volatility, leaving less room for making profit from swings for banks like Morgan Stanley.

Additionally, in recent times, Morgan Stanley is emphasizing more on its core operations while retreating from non-core and less profitable businesses. The latest step is possibly part of its strategy to improve efficiency.

Very recently, Morgan Stanley sold its physical commodity business stake in TransMontaigne Inc. to Tulsa, OK-based NGL Energy Partners LP (NGL - Snapshot Report). Again, just over a month ago, Morgan Stanley sold its non-core Swiss private banking unit to Bank J. Safra Sarasin AG, the Swiss unit of J. Safra Sarasin Group.

Again, JPMorgan Chase & Co. (JPM - Analyst Report) and Citigroup Inc. (C - Analyst Report) expect slump in the market revenues in second quarter. We believe that anticipation of similar trend in the market revenues might have prompted Morgan Stanley to cut employment in currency and rates trading divisions.

Further, it is a recent trend among many Wall Street banks to keep a lid on expenses related to pay and benefits of the employees. Notably, Morgan Stanley has set an upper target of 40% for expenses associated with pay and benefits, as a percentage of revenue for both the institutional securities and the investment management divisions.  It aims to achieve a compensation ratio not exceeding 55% in the wealth management division. These belt-tightening strategies have likely led Morgan Stanley to curtail its work force in the aforesaid divisions.

Morgan Stanley currently holds a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.