Late Lunchtime Links: Maybe Morgan Stanley needs to halve the size of its fixed income sales and trading business

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Halve it

Halve it (Photo credit: WxMom)

Things have been looking a little ominous for Morgan Stanley's fixed income sales and trading professionals ever since it because apparent that they'd had a terrible second quarter.  As the chart below - courtesy of Jon Peace at Nomura, clarifies, Morgan Stanley's second quarter in fixed income sales and trading was far worse than anyone else's. It was even worse when compared to Morgan Stanley's exceptional first quarter: q-o-q, revenues were down 70%.

Source: Jon Peace, Nomura

Needless to say, Morgan Stanley is doing something about this. In the conference callaccompanying its second quarter results, CFO Ruth Porat said some fixed income businesses were, “nice to have," but, "not necessary”, and that Morgan Stanley would, move “away from complex structured product businesses to high-velocity, flow-oriented products.”

For Morgan Stanley fixed income professionals worried about their future, a note out today from Ed Najarian, an analyst at International Strategy & Investment Group, is therefore like to be a source of concern. Najarian says Morgan Stanley should cut the size of its fixed income unit in half. He's not calling for headcount reductions of 50% per se, but for a 50% reduction in risk weighted assets allocated to the unit. Najarian points out that Morgan Stanley's stock has fallen 50% in three years and is currently languishing at 50% of its book value. If assets devoted to fixed income were slashed and the money used to repurchase Morgan Stanley stock, Najarian suggests it would please shareholders. Fixed income sales and trading staff, on the other hand, are likely to be far less happy.


Profits fell 70% quarter on quarter at RBS markets. (Financial News)

But second quarter profits at RBS markets were down only 70% year-on-year. (RBS) 

RBS is gradually turning itself into something that will one day be valuable. Indeed, it could be very valuable. (Evening Standard)

RBS fired four people over LIBOR. (Bloomberg) 

Mike Corbat, the head of Citigroup's operations in Europe, the Middle East and Africa, is emerging as a potential successor to Vikram Pandit. (Financial News) 

Schroders hired 50 people in the first half of the year, mostly to work on IT upgrades.(CityAm)

Macquarie Capital Europe made a £27m loss in the year to March and cut staff from 218 to 204. (Financial News)  

Bank of America says its traders generated profits on 122 out of 125 trading days this year. (Zerohedge)

Quant blogs you may be interested in. (Quora)