Morgan Stanley, the financial firm whose shares have declined 45 percent this year, plans to cut about 1,600 jobs amid an industrywide drop in revenue from investment banking and trading.

Reductions will occur in the first quarter of 2012 at all levels of the firm, Mark Lake, a company spokesman, said in an interview Thursday. The figure amounts to about 2.6 percent of the 62,648 employees New York-based Morgan Stanley had at the end of September.

Chief Executive Officer James Gorman is grappling with Europe’s debt crisis and concern that U.S. economic growth will slow, reducing demand for trading and investment-banking services. Morgan Stanley’s revenue from those businesses dropped 36 percent in the third quarter from the previous three months, excluding accounting adjustments.

The decision to reduce staff comes as “we conduct our year-end performance-management process and evaluate the right size of the franchise for 2012,” Lake said.

Morgan Stanley, the sixth-biggest U.S. bank by assets and owner of the world’s largest brokerage, advanced 0.7 percent to $15.17 at 11:25 a.m. in New York trading.

Financial firms have disclosed plans to eliminate more than 200,000 jobs globally this year in response to market turmoil, economic weakness and fallout from Europe’s sovereign debt crisis. Citigroup Inc., the third-biggest U.S. bank, told regulators this week it may dismiss 413 employees in New York City as the firm starts eliminating 4,500 jobs.

Morgan Stanley’s job reductions won’t affect financial advisers in the firm’s joint venture with New York-based Citigroup’s Smith Barney, according to a person familiar with the plans. Morgan Stanley previously said it would eliminate at least 300 low-producing brokers, and the number of advisers fell by 828 in the 12 months ended Sept. 30.

The cuts in fixed-income trading will come primarily from businesses such as securitization that the firm is looking to shrink as it faces new capital rules, said the person, who declined to be named because the details haven’t been made public. The firm won’t eliminate a significant number of jobs in the interest-rate and foreign-exchange trading businesses that it expanded in 2009 and 2010, the person said.

Equities trading will likely be less affected by the cuts than other areas, the person said. Revenue from that business, excluding accounting adjustments, jumped 29 percent in the first nine months of this year, the most of any major U.S. firm.



Return on Equity



Gorman said in October that he wasn’t wedded to the current size of the company and would make necessary cuts if the slowdown in the capital markets was prolonged. Morgan Stanley had a 6 percent return on average common equity in the first nine months of the year, below Gorman’s goal of “mid-teens.”

Morgan Stanley said in a June presentation it had begun a three-year cost-saving project that sought to eliminate $1 billion from annual expenses. The firm increased that target to $1.4 billion in October.

Revenue from investment banking and trading at the 10 largest global firms fell 12 percent in the first nine months of this year, after a 23 percent decline in 2010, according to industry consultant Coalition Ltd. 

(Bloomberg)