Chop, Chop, Chop Goes the Axe at Morgan Stanley

"There's way too much capacity and compensation is way too high," Morgan Stanley (NYSE: MS  ) CEO James Gorman recently told Financial Times. "As a shareholder I'm sort of sympathetic to the shareholder view that the industry is still overpaid."

Mark this day down in your calendars, Fools. It's not everyday you hear a Wall Street CEO utter such things. And if other Wall Street CEOs aren't saying it, they're probably thinking it.

What it means for Morgan Stanley
The Wall Street stalwart is set to cut 4,000 jobs (7% of its workforce) by the end of 2012. For 2013, Gorman hasn't yet mentioned further job cuts, but he told Financial Times that salary cuts and reduced bonuses were likely in the works.

As a means of boosting shareholder returns and increasing return on equity (at about 5% now, down from more than 20% for the bank in its glory days), these are all reasonable moves. Essentially, Morgan Stanley is doing what any other business does when business is down: cutting costs.

And they're not the only ones doing it

  • Bank of America (NYSE: BAC  ) is currently on a job-cutting spree. The superbank is set to cut 16,000 jobs by the end of the year in an effort to reduce costs and increase profitability.
  • Citigroup (NYSE: C  ) has said it will cut about 350 employees: not a big number in and of itself, considering the bank's size, but the fact they would all be traders makes it more significant.
  • Not to be outdone, the Germans are on a job-cuts blitzkrieg themselves. Deutsche Bank (NYSE: DB  ) announced in July it will cut about 1000 from its investment banking rolls: approximately 10% of that division's toilers.

Pity the banks, sort of
Things are tough all over for big banks these days. Even if you don't take a significantly more aggressive regulatory environment into account, the general depressed state of the world economy should tell you there's just not as much business being done. Less business overall means less business for bankers: less lending, less trading, and fewer mergers and acquisitions -- all the classic moneymakers.

Banking is downsizing, and Morgan is doing what it needs to do, here. Kudos, James Gorman, but just remember your own salary and bonus as you swing that mighty cost-cutting axe.

Speaking of big banks hopefully on the mend, check out The Motley Fool's new in-depth company report on Bank of America. It thoroughly details B of A's prospects and gives three reasons to buy and three reasons to sell. Just click here for immediate access. Thanks for reading, and for thinking.

Fool contributor John Grgurich owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bleeding edge of capitalism on Twitter @TMFGrgurich.

The Motley Fool owns shares of Citigroup and Bank of America. The Motley Fool has a delightful disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2047925, ~/Articles/ArticleHandler.aspx, 12/20/2014 1:05:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement