Morgan Stanley intends to cut spending by an additional $1.6 billion through 2014 with plans to defer expansion and downsize offices in areas outside key locales such as New York, London and Hong Kong, the firm’s chief executive James Gorman told analysts on today’s fourth quarter earnings call.
The bank “will continue to look for additional ways to reduce expenses” Gorman said. Lower compensation expenses, along with notable gains in wealth management and trading revenue, helped the firm beat fourth quarter earnings expectations on Friday. Morgan cut 6,000 jobs over the last 12 months, including 1,600 cuts announced in December. Compensation was down 8% in the fourth quarter and 4% on the year. Gorman said that downward trend will continue.
The compensation pool for Morgan’s securities and investment banking business was 44% of adjusted revenue in 2012, down from 53% in 2011, according to Reuters.
Assuming flat revenue, Morgan expects to reduce spending by an additional $1.6 billion through 2014, by limiting the focus on international offices, reducing middle office expenses and concentrating its resources in money-making locales like New York, London and Hong Kong, Gorman said.
The firm will downsize local sales and trading resources in Russian and the Middle East, defer expansion plans and, judging by Gorman’s previous comments, continue to cut the pay of bankers. Gorman made waves last year by declaring that Wall Street is filled with “too many overpaid bankers.” Since delivering those comments, Gorman has realigned the business to focus more on wealth management and deferred 100% of bonuses for many top bankers.
Morgan also announced that it has already reached its 2013 goal of trimming risk-weighted assets within fixed- income and commodities to $280 billion. It has set a new goal of $255 billion.
Executives didn’t discuss specific plans to make additional job cuts, but with the firm’s aggressive budget plan, significant cost reductions will need to come from somewhere. Stay tuned.