With the delay in the revival of dealmaking due to recession fears, Morgan Stanley is now focused on cutting expenses and is preparing for a new wave of job cuts.
According to insiders, the management team is in talks to remove approximately 3,000 jobs from the company's worldwide workforce by the end of this quarter, which equates to nearly 5% of the staff, excluding financial advisors and those who support them in the wealth management department.
As per media reports, the banking and trading group is likely to bear the majority of the job cuts. However, a representative from Morgan Stanley, headquartered in New York and having approximately 82,000 employees, chose not to provide a comment on the matter.
Morgan Stanley's decision to reduce its workforce by approximately 5% comes only a few months after the firm's earlier reduction of 2% of its workforce. The first quarter results of the biggest banks on Wall Street were not very encouraging, as the fees earned from assisting companies with takeovers and capital raising - an indicator of the economy's well-being - decreased significantly in the past year.
The Federal Reserve's attempts to control inflation via rate hikes and the resulting turbulence in regional banking have further hampered business activity.
In the previous month, James Gorman, the Chief Executive Officer, stated that underwriting and merger activities have been low-key and that he does not anticipate any improvement before the second half of this year or 2024. Ken Jacobs, the head of Lazard Ltd., concurred with this viewpoint and projected that the current sluggishness in the industry will continue throughout the year.
Last week, Lazard, based in New York, declared that it would be removing 10% of its staff. Jacobs stated that the salaries of dealmakers have increased substantially in recent years as junior bankers have insisted on higher wages during the boom period.
In an interview last week, Jacobs stated that it is more difficult to reverse these salary hikes, while expenses for travel, entertainment, and information services have also skyrocketed.
Morgan Stanley's profit for the first quarter dropped from the previous year, primarily due to the decline in dealmaking, resulting in a 32% decrease in merger advisory and a 22% drop in equity-underwriting business.
According to analysts' predictions, the revenue from banking fees is expected to be comparable to last year's earnings, which amounted to about half of the $10.3 billion earned by the bank during the dealmaking surge of 2021.
Following the pandemic, job cuts in the financial sector have resumed, after banks had previously held back on such measures to offer their employees stability. As deals picked up, the banks also competed for top talent. However, as the boom subsided, banks have shifted their focus to expenses, with several institutions announcing their intention to lay off workers.
In December, Morgan Stanley reduced its workforce by around 1,600 jobs, followed by Goldman Sachs Group Inc., which made one of its most significant cuts ever by eliminating about 3,200 positions in January. Recently, Citigroup Inc.'s CEO, Jane Fraser, stated that the company is willing to make staffing adjustments at its investment bank.