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Morgan Stanley to Layoff 1600 - Analyst Blog

Adding to the ongoing unemployment concerns, Morgan Stanley ( MS ) announced its plan to retrench1,600 workers in the first quarter of 2012. After witnessing a similar trend at many other mega banks and with the Eurozone crisis continuing, the layoff announcement does not come as a surprise. Amid the market instability and weakening revenue sources, the company took this decision to reduce costs in the upcoming year.

The job elimination will take place in all divisions globally and employees of all levels (analyst, associate, vice president, executive director and managing director) will be affected, according to a company spokesman Mark Lake.

However, the 17,000 financial advisers of the Morgan Stanley Smith Barney unit are not expected to be affected by the upcoming layoffs. Also, there will be no impact on year-end performance-based bonuses, even for potential job-losers.

The job cuts represent about 2.6% of Morgan Stanley's total workforce as of September 30, 2011. With this number, the total banking job cuts counts to about 200,000 this year.

Morgan Stanley was one of the victims of the 2007 housing bubble. Its share price has plummeted about 75% since then. Despite taking several precautionary initiatives, the company has still not been able to come out of the crisis.

Moreover, due to its weak capital position, the company was not granted the Federal Reserve's green signal to raise dividend, following the third round of stress tests early this year.

So, were the investors impressed? Doesn't seem so. Though the job cut announcement overwhelmed investors and the shares were up more than 2% at $15.39 in a short while, the stock price eventually dropped 0.3% to close at $15.01 on NYSE.

The job cut announcement by the company could be viewed as an effort to save its own skin. It explains Morgan Stanley's attempt to improve profitability amid revenue headwinds due to a weak economy and stricter capital requirements by regulators.

Notably, Morgan Stanley is not the only institution rendering so many jobless. Among other U.S. banks, earlier this year, Citigroup Inc. ( C ), Bank of America Corp. ( BAC ) and Goldman Sachs Group Inc. ( GS ) outlined plans to cut thousands of jobs.

Earlier this month, Citigroup announced its plan to eliminate 4,500 jobs, or about 1.5% of its global workforce over the next few quarters. In September, Bank of America Corp. confirmed its plan to retrench about 30,000 workers under the first phase of its ongoing cost-cutting initiative. This will reduce BofA's work force by about 10%.

So the layoff story has accelerated, spreading panic within the corporate clan. Realistically speaking, until there is an evident revival in revenue generation, a hideous cost-to-income ratio will force many more banks to reduce costs through job cuts to maximize profits and boost capital ratios. Now that the industry leaders have taken their ruthless stand, we wonder what job cut schemes the other weakly performing firms might have in store.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report

CITIGROUP INC ( C ): Free Stock Analysis Report

GOLDMAN SACHS ( GS ): Free Stock Analysis Report

MORGAN STANLEY ( MS ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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