Morgan Stanley plans 3,000 job cuts, largely sparing wealth management

Morgan Stanley is preparing a fresh round of job cuts amid a renewed focus on expenses as recession fears delay a rebound in dealmaking. 

Senior managers are discussing plans to eliminate about 3,000 jobs from the global workforce by the end of this quarter, according to people with knowledge of the matter. That would amount to roughly 5% of staff excluding financial advisors and personnel supporting them within the wealth management division.

The banking and trading group is expected to shoulder many of the reductions, one of the people said. A spokesperson for New York-based Morgan Stanley, which employs about 82,000 people, declined to comment. 

The cuts come just months after the firm trimmed about 2% of its workforce. Wall Street's biggest banks offered few reasons for cheer while reporting first-quarter results after seeing their fees from helping companies with takeovers and raising capital — a proxy for the economy's health — slump over the past year. The Federal Reserve's desire to curb inflation through rate hikes and the ensuing regional-banking tumult have further damped activity.

CEO James Gorman said last month underwriting and mergers activity has been subdued and that he doesn't expect a rebound before the second half of this year or 2024. 

In the first quarter, Morgan Stanley's profit fell from a year earlier, dragged down by a dropoff in dealmaking, with a 32% decline in its merger advisory and 22% slump in its equity-underwriting business. Analysts are forecasting that revenue from banking fees will be in line with last year's haul — which was roughly half the $10.3 billion that the bank pulled in during 2021's dealmaking frenzy.

Revenue within the bank's institutional securities group, which houses the bankers and traders, slid 11% in the quarter ending March. Its wealth-management unit went the other way, climbing 11% compared with a year ago.

The firmwide results also saw Morgan Stanley's efficiency ratio — a measure of non-interest expense relative to revenue — hit 72%. The bank has spelled out a target of keeping that figure below the 70% mark.

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Industry cuts
Job cuts across finance have returned since the pandemic, when banks held off on reductions to give employees stability and then fought for talent as deals picked up. But as that frenzy cooled, expenses have become the focus with several banks unveiling plans to fire staff.

Morgan Stanley in December cut roughly 1,600 jobs, which led to $133 million of severance costs in the fourth quarter tied to the reduction. Then Goldman Sachs eliminated about 3,200 positions in January in one of its biggest cuts ever. On Monday, Citigroup CEO Jane Fraser said her company is willing to make adjustments to staffing levels at its investment bank.

"Like every institution, you make some adjustments around the capacity, but we're playing the long game in investment banking," Fraser said in a Bloomberg Television interview.

Ken Jacobs, who runs Lazard, forecast that the industry's doldrums will last for the rest of the year.

Lazard will eliminate 10% of its workforce, the New York-based firm said last week. Jacobs noted that dealmaker pay has surged in recent years as junior bankers demanded higher salaries amid a boom. 

It's harder to roll back those raises, while costs for travel, entertainment and information services have soared as well, Jacobs said in an interview last week.