* Morgan Stanley to cut jobs in first quarter
* Layoffs could save bank about $2 bln
(Adds analyst and investor quotes and background on Morgan
Stanley, Wall Street job cuts and earnings estimates)
By Lauren Tara LaCapra
Dec 15 Morgan Stanley, the only large
Wall Street bank to avoid major job cuts this year, said on
Thursday that it would fire 1,600 employees in the first quarter
to cut costs as trading and banking revenue show few signs of
Morgan Stanley declined to say how much it would save
from these cuts, but if the cost savings are similar to those
seen by Goldman Sachs Group Inc (GS.N), the bank may save about
$2 billion in compensation expenses. Goldman reduced its payroll
by 1,300 last quarter, saving $1.6 billion in compensation
Still the cuts, which amount to 2.6 percent of the
bank's workforce, may be too small and Morgan Stanley will have
to do more to show it is serious about earning a better return
for shareholders, analysts said.
"Business is slow, but none of these cuts seem like
radical changes in the business model to me," said Chris
Kotowski, a bank analyst at Oppenheimer & Co.
Large banks across the world have outlined plans to cut
more than 125,000 jobs this year, according to a Reuters tally.
Goldman, JPMorgan Chase & Co (JPM.N), Bank of
America Corp (BAC.N), Citigroup Inc (C.N) and other U.S.
banks are among those that have announced staff reductions
ranging from 0.4 percent to 10 percent of their workforces.
These cuts come as banks see their profitability sink
amid the weak global economy and European debt crisis.
Clients are holding back on trading and dealmaking activity
until markets become less volatile. At the same time, the value
of securities banks hold for investments, clients or
market-making purposes has declined, further hitting the bottom
At Morgan Stanley, which employs 62,648 people
globally, the job cuts will come across all staff levels
and geographic areas, including investment banking, trading and
back-office functions, spokesman Mark Lake said.
Analysts expect the bank to trim more jobs toward the
middle of next year, as the Morgan Stanley Smith Barney
franchise is further integrated .
"Offices can be consolidated across the MSSB network,
middle-management ranks can be thinned and support staffs
rapidly resized," said Sanford Bernstein & Co analyst Brad
Hintz, a former Morgan Stanley treasurer.
Before Thursday's announcement, Morgan Stanley had kept
firings limited to several hundred underperforming financial
advisers earlier in 2011.
Executives have emphasized that the bank had not built
up staff as much as competitors during a brief market revival in
2009, and that they were still building up Morgan Stanley's
fixed-income trading division.
The company has also cut costs unrelated to pay, such
as Blackberry use, travel and data services, and lifted an
annual expense savings target from the Smith Barney integration
to $1.4 billion a year from $1.1 billion.
But those efforts have done little to calm investors
worried about Morgan Stanley's exposure to the European debt
"Although everyone gets hit on bad days with Europe,
Morgan Stanley was the poster child, with the most extreme
swings," said Walter Todd, a portfolio manager at Greenwood
Capital who liquidated most of his Morgan Stanley shares last
Shares of Morgan Stanley and Goldman are both
trading at discounts to tangible book value, and both are down
more than 44 percent so far this year, as of Wednesday's close.
The NYSE Arca Securities Broker/Dealer Index, which includes
both stocks, is down a more moderate 33 percent, while the S&P
500 Index is down 3.6 percent.
Analysts are in the midst of a new round of cuts on their
profit estimates for investment banks.
Morgan Stanley is likely to report a loss in the fourth
quarter, according to recent analysts' estimates, due to a
special $1.2 billion charge related to a settlement
with the bond insurer MBIA Inc (MBI.N).
Even excluding that charge, Morgan Stanley will earn just 15
cents per share for the fourth quarter, Atlantic Equities
analyst Richard Staite predicted in a report on Thursday. That
compares with 41 cents per share in the year-ago period.
Staite expects Morgan Stanley to earn a 2 percent return on
tangible equity in the fourth quarter of 2011. That figure will
climb to 6.6 percent in 2012, he predicted, still a far cry from
the mid-teens level that some investors had been expecting.
Job cuts may help Morgan Stanley achieve better returns.
Goldman eliminated 4 percent of its staff during the third
quarter by cutting 1,300 jobs. The move helped the bank lower
compensation costs by $1.6 billion, above a target set in July
to cut 1,000 jobs and save $1.2 billion.
But its return-on-equity for the first nine months of the
year was 3.7 percent, far below Goldman's ROE levels that were
above 30 percent before the financial crisis or the 22.5 percent
it achieved in 2009.
(Reporting By Lauren Tara LaCapra; Editing by Paritosh Bansal,
Derek Caney, Dave Zimmerman)
(C) Reuters 2011 All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.