"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.
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