* Morgan Stanley has not yet announced major layoffs
* Bank's payrolls appear lean relative to peers
* Weak business could affect staffing eventually
NEW YORK, Sept 29 (Reuters) - Morgan Stanley (MS.N) has so far avoided making the job cuts that competitors have planned, but analysts say the investment bank may have no choice but to lay off staff if market conditions don't improve.
Morgan Stanley cut staffing levels early in the crisis, and was slower to add staff when markets temporarily recovered in 2009 and early 2010. A spokesman this week reiterated comments that executives have been saying for months: Morgan Stanley is not planning major layoffs in trading or banking, with limited cuts already announced for wealth management.
But the outlook for Morgan Stanley's bread-and-butter businesses -- trading, deal making, and wealth management -- has deteriorated in recent months.
Even if the bank's payrolls are less bloated than peers, it will still face investor pressure to cut costs as revenue weakens, analysts said.
"Morgan Stanley is in the same bathtub as all the other banks and unfortunately someone has pulled the plug recently," said James Ellman, a portfolio manager at Seacliff Capital.
Christopher Whalen, a bank analyst and co-founder of Institutional Risk Analytics, said Morgan Stanley has been on "a continuous search for cost savings" that will intensify going forward.
"I expect to see more head count reduction at Morgan Stanley later in the year and little or no hiring," he said.
Although Morgan Stanley surprised investors with better-than-expected trading revenue last quarter, results were not much better than peers after stripping out special items. Its overall profits have been uneven since the crisis began to unfold, due to one-time charges and unexpected trading losses.
Its wealth-management division has also been delivering lackluster results since Morgan Stanley unveiled plans to acquire Citigroup Inc's (C.N) Smith Barney business in 2009. The division produced a pretax margin of 9 percent last quarter, less than half of Chief Executive James Gorman's 20 percent target.
As markets have plunged and long-term rates have fallen in recent weeks, analysts have cut earnings estimates for Morgan Stanley by 21 percent for the third quarter, 16 percent for the fourth quarter and by 9 percent for 2012. Its chief rival, Goldman Sachs Group Inc (GS.N), has seen even sharper cuts.
Markets have weakened enough that Goldman is considering cutting $1.45 billion of expenses by year's end, the New York Times reported on Tuesday, $250 million more than the bank said in July. [ID:nS1E78Q0DA]
Morgan Stanley shares closed at $14.16 on Wednesday, 0.53 times its tangible book value of $26.61 as of June 30. Goldman's closing price of $96.32 was 0.79 times its tangible book value of $121.60.
A 'FLEXIBLE' WORKFORCE
Banks in the U.S. and Europe--including Goldman, Bank of America Corp (BAC.N) and Barclays PLC (BARC.L)--- have outlined more than 90,000 job cuts in recent months as part of broader cost-cutting initiatives.
So far, Morgan Stanley has given no sign that it plans to follow suit. Six recruiters who spoke to Reuters said they have not received an influx of resumes from ex-Morgan Stanley employees recently, nor have they heard chatter of job cuts and low morale the way they have regarding other banks.
Morgan Stanley has already said that it is culling underperforming brokers from its wealth management business. In June, Chief Financial Officer Ruth Porat said the bank may cut its brokerage force below a previously stated target of 17,500 to 18,500 to save costs. At June 30, the business had 17,638 financial advisers.
But trading and banking have been immune to recent cuts, partly because Morgan Stanley is working to strengthen its fixed-income trading business and already made deep cuts leading into the crisis. Management slashed more than 12,000 jobs from those areas from 2007 to 2009 and the bank was slow to hire as others were ramping up. Its staff in areas excluding wealth management rose just 3 percent in 2010.
Goldman Sachs, in contrast, added more than 9,000 jobs during that overall period, boosting staff levels by 35 percent. (Graphic: link.reuters.com/gac24s)
"Some institutions that did not hire in bulk in 2009 and 2010, like Morgan Stanley, might not need to cut as much as the others and perhaps won't have to cut staff at all," said Michael Karp, a founding partner of recruiting firm Options Group who focuses on trading businesses.
Still, even if Morgan Stanley does not have to cut, management often can't resist investor pressure to reduce staffing, said Eric Abrahamson, a professor at Columbia Business School who has studied layoffs.
"Finance companies are very, very flexible in the size of their workforce," he said. "There's no handwringing over firing someone who has been there for 20 years."
To save money without job cuts, Morgan Stanley has cracked down on non-compensation costs, such as employees' BlackBerry use, travel and market-data services. It is also integrating all financial advisers onto the same technology platform, with plans to combine brick-and-mortar locations.
Through these efforts, the bank hopes to save $500 million on an annualized basis by 2012 and $1 billion by 2014.
(Reporting by Lauren Tara LaCapra in New York; editing by Dan Wilchins, Dave Zimmerman)
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