Ambereen Choudhury, Julia Verlaine and Michael J. Moore
Morgan Stanley eliminated fixed-income trading jobs in London, New York and Toronto this week because of tough market conditions, people with knowledge of the plan said.
The dismissals focused on traders in foreign exchange and interest rates, the people said, asking not to be identified as the details are private. The cuts were made starting June 3, two of the people said. Hugh Fraser, a spokesman for Morgan Stanley in London, declined to comment.
The biggest trading banks have warned investors about a slump in fixed-income trading activity this quarter amid low volatility. That threatens Morgan Stanley’s quest to boost the return on equity of its fixed-income business to 10 percent.
The cuts included closing the interest-rates trading desk in Toronto, according to three of the people. The desk consisted of four employees, said one of the people. The Toronto desk was started in 2012, when the rates business was run by Glenn Hadden, a Canadian who left the bank earlier this year.
Morgan Stanley’s fixed-income business, which is run by Robert Rooney and Michael Heaney and overseen by Colm Kelleher, earned at least 10 percent ROE in three of its five units last year, with interest rates and commodities as the laggards, according to the bank. The firm agreed to sell part of its commodities business to Russian company OAO Rosneft (ROSN) to boost returns.
Morgan Stanley, which generates more revenue from equities trading than fixed income, was alone among major U.S. banks in registering a trading increase during the first three moths of 2014, though Chief Financial Officer Ruth Porat said in April that she saw weakness ahead.
“The volumes that we talked a lot about during the first quarter – lower activity – we’re continuing to see that really does persist into the second quarter,” Porat said at the time.
Investment-banking revenue at five of the top securities firms may drop 7 percent on average in the second quarter as clients cut back on fixed-income trading and margins narrow, JPMorgan Cazenove analysts said in a note to clients on May 29.
Average sales from fixed-income, currencies and commodities trading may fall about 10 percent, while revenue from advising on deals and underwriting securities will probably rise about 1 percent, the analysts wrote.
Morgan Stanley had 55,883 employees as of March 31, down from 62,494 three years earlier, according to its filings.