Monday, investment bank Morgan Stanley (MS), converted into a bank holding company in September, is reportedly set to announce a lay-off of about 1,800 employees this month, representing nearly 4% of its global workforce, as it struggles to align costs in line with the slowing business.
According to reports, the latest round job losses are expected to affect back-office and support functions including technology, infrastructure and general administration. However, job cuts are unlikely to impact the 8,400 brokers at the company's global wealth-management unit. The unit run by Morgan Stanley's co-President James Gorman is expected to merge with Citigroup's Smith Barney business later this year in a joint venture that will be 51% owned by Morgan Stanley and run by Gorman.
Last month, Citigroup, Inc. (C) and Morgan Stanley agreed to combine their brokerage operations. The new joint venture, to be named Morgan Stanley Smith Barney, will be the world's largest brokerage firm with more than 20,000 brokers.
Morgan Stanley said in November that it planned to cut 10% of staff in its institutional securities unit and 9% in its asset management division in order to cope with the slowing economy and waning client demand. The job cuts are in addition to the 7,000 people Morgan Stanley has already fired in 2008.
The New York-based bank employs about 46,964 people worldwide, as per a filing in November. Morgan Stanley said it expects about $2 billion in cost savings from job cuts already announced and other expense reductions. Reports suggest that job losses at Wall Street companies during the fourth quarter of 2008 and the first quarter of 2009 exceeded 120,000.
The company is also implementing several cost cutting measures. During the fourth quarter, Morgan Stanley moved away from some of the business lines that struggled heavily during the past year, which will further reduce the bank's risk. In an effort to better position itself in the rapidly changing market environment, Morgan Stanley began to shrink its prime brokerage business, exited most of its proprietary trading strategies, reduced its principal investments division and exited the residential mortgage origination business.
As a part of further cost-cutting measures, John Mack, the company's chairman and chief executive officer, and Co-Presidents Walid Chammah and James Gorman have forgone bonus for fiscal 2008. The company's bonus pool, excluding pay for financial advisers, dropped about 50% this year.
Morgan Stanley recently received bank holding company status, providing it with access to a portion of the federal government's $700 billion rescue plan, allowing it to borrow at the Federal Reserve's discount window and making it easier to get stable sources of funding. Morgan Stanley was among the first banks to receive $10 billion in fresh capital from the government in return for preferred stock and warrants to purchase common shares.
The deepening global recession has triggered more losses for Morgan Stanley's investment bank, and in December the company reported a wider-than-expected quarterly loss.
Morgan Stanley reported a massive $2.3 billion net loss for the fourth quarter, hurt by huge losses at its institutional securities and asset management businesses amid an unprecedented turmoil in the financial services industry. Net revenues for the fourth quarter were $1.83 billion, compared to negative net revenues of $432 million in the same quarter last year.
Morgan Stanley and larger rival Goldman Sachs Group Inc. (GS) are the only two remaining large investment banks, and were granted bank holding company status in September in the wake of Lehman Brothers Holdings, Inc.'s (LEHMQ.PK) bankruptcy.
Goldman Sachs also set plans in October to reduce 10% of its workforce, or nearly 3,300 jobs. According to media reports in the first week of November, Goldman fired about 10% of its employees as part of its plans to cut more than 12,000 jobs in light of mounting losses. Further, reports suggest that Goldman Sachs is expected announce an additional 10% workforce reduction soon.
MS closed Monday's regular trading session at $20.80, up $0.57 or 2.82% on a volume of 31.27 million shares, lower than the three-month average volume of 34.14 million shares.
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