Morgan Stanleys December announcement that it was cutting more than 400 fixed-income jobs grabbed headlines. While the announcement may have been depressing news for Morgan Stanleys bond traders, not everyone saw it that way.
UBS analyst Brennan Hawken upgraded Morgan Stanleys stock from $39 to $42 on the news.
The transition and reduction of capital from the FICC business could take time, but it is our view that if [Morgan Stanley] can articulate a clear path (with milestones) to that end state, it can begin to positively impact the valuation of MS shares, he wrote.
The Wall Street employment picture is vastly different than it was a decade ago. A three-hour glitch at the New York Stock Exchange last summer illustrated how little trading occurs on that storied floor during the day.
In bond trading, the recent retrenchment may be even more pronounced. Looking at just the past few years from 2010 to 2014, the number of Wall Street bond traders has declined about 17 percent, according to recruiting firm Options Group.
Tabb Groups Anthony Perrotta expects more bouts of extreme volatility in the bond market in the coming year, and he sees these conditions leading to further bond trading consolidation on Wall Street.
For the most part, the general theme is that larger banks with big distribution networks would likely step in and benefit from some of the departures of other organizations as they see this declining revenue base and extreme volatility being hazardous to their steady earning streams, he said.
John Challenger, CEO of outplacement firm Challenger, Gray & Christmas, concurs. The fixed-income areas have been suffering. The cuts at Morgan Stanley may be a signal for changes coming from others as well, he said.
In the broader picture, market reactions to recent layoff announcements suggest that the Street might be somewhat accepting of a new reality. For some large firms that have struggled with low returns and high litigation charges, job cuts may be viewed as a necessary evil to put firms on a less treacherous path.
In March, when it was announced that Tidjane Thiam would take over as CEO of Credit Suisse, analysts predicted he would make significant cuts in investment banking. Credit Suisse shares were up 7.5 percent on the day of the announcement. When news broke months later that the firm planned to cut as many as 5,600 jobs across the U.S., U.K. and Switzerland, which included an expected 2,000 cuts in the U.S., analysts were disappointed that the cuts did not go far enough.
In September, Deutsche Bank announced plans to cut 23,000, representing a quarter of its total workforce. Deutsche Bank shares jumped 1 percent after the job-cuts news broke, making the firm the top gainer in the Stoxx index of European banks that day. The Street apparently agreed with new co-CEO John Cryans view that a leaner Deutsche Bank would be better able to compete.
As Cryan put it: Its all about executing on our plans to build a better Deutsche Bank.
