Why Morgan Stanley’s fixed income bankers should have little to fear from its forthcoming redundancies

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Innoculated against redundancy

Innoculated against redundancy

Morgan Stanley doesn’t seem to have started making all those redundancies yet.  According to figures from IMAS research, it actually added a handful of approved persons in London in February.

When the redundancies do, eventually, come, Morgan Stanley’s fixed income professionals will be pleased to hear that they should by totally fine. In a little-mentioned investor presentationlast week,

This, in summary, is what Colm said:r, co-president of Morgan Stanley Institutional Securities and head of EMEA and Asia Pacific, explained how important fixed income is to the bank, and his regrets that it was cut so heavily in the past.

Morgan Stanley was foolish to pull back so heavily from fixed income before

Financial News points out that Morgan Stanley’s fixed income business more than halved in size between 2006 and 2011.

In his presentation, Kelleher said this was a bad mistake and that Morgan Stanley had cut too far into its muscle. “In 2009 we only had a 5% share of the fixed income revenue pool. This wasn’t sustainable given our cost structure,” he said.

Morgan Stanley is aiming for an 8% fixed income market share and isn’t there yet

The bank has rehired in the areas it was weak in (rates and FX) and is aiming for an 8% market share target. It’s currently at 7.1%, estimates Kelleher.

This does not sound like a business that will be cutting soon.

The recent market-wide decline in fixed income revenues was cyclical, not secular

The global fixed income revenue pool compressed to around $100bn in 2011, said Kelleher. It will normalize again around $150-160bn, he predicts.  This being the case, he thinks Morgan Stanley’s fixed income business is, “sized appropriately.”

In the coming fixed income world, it will be imperative to be a big player

Cutting fixed income now would risk losing market share. And losing market share would risk missing out in the metamorphosis of fixed income into a more liquid exchange traded business.

The fixed income business is on the cusp of an evolution similar to the equities business, said Kelleher. When equities trading went electronic, there was a 70% reduction in bid-offer spreads, but a 12x increase in volumes traded, he pointed out.

“If you are a bulge player with market share, this is good for you,” says Kelleher, “which is why we’re focused upon market share in fixed income.”


Morgan Stanley is going to do whatever it can to retain (and maybe even hire) fixed income professionals who can bring clients back to its trading business and technologists who can improve its platform. When the redundancies finally happen, these people will be entirely immune.