Who knows what Morgan Stanley is up to in terms of fixed income? Who knows whether sales and trading jobs in Morgan Stanley's fixed income business are safe? Who knows whether many of Morgan Stanley's fixed income traders will get paid bonuses this year, unlike last?
Not, it would seem, Morgan Stanley. The U.S. bank has been a bit all over the place when it comes to its fixed income messaging.
In April, Ruth Porat, Morgan Stanley's CFO, said the bank was committed to achieving an 8% market share in fixed income sales and trading - a more than 30% increase in its share currently.
Today, however, the Wall Street Journal reports that Colm Kelleher, president of Morgan Stanley's institutional securities division, has been saying something different. At a meal earlier this month, Kelleher reportedly said Morgan Stanley has resigned itself to its fixed income business being much smaller than rivals'. The bank is now reportedly aiming for quarterly fixed income sales and trading revenues of no more than $1.5bn-$2.5bn. It's not planning to increase its market share after all.
In one sense, Morgan Stanley is unequivocally reducing the size of its fixed income business: it wants to reduce risk weighted assets from $390bn in the third quarter of 2011, to $200bn by the end of 2016.
Until now, however, the bank's stated strategy was to simultaneously reduce fixed income assets whilst increasing fixed income revenues and market share - a strategy that has been criticized by various banking analysts as inherently contradictory.
Kelleher's comments indicate that Morgan Stanley has ditched the second part of this strategy - it won't be trying to increase fixed income revenues and market share. Instead, it will be trying to keep revenues pretty much stable: in the first quarter of 2013, revenues in Morgan Stanley's fixed income business were $1.5bn excluding accounting adjustments; in the fourth quarter of 2012 they were around $2bn. So, James Gorman wasn't telling an untruth when he told investors a few weeks ago that the size of Morgan Stanley's fixed income business just right.
The question is what this means for jobs. Morgan Stanley had intended to increase its fixed income revenues, now it doesn't. Does this mean jobs will go? The bank declined to comment on its strategy.
Morgan Stanley has been cutting jobs in its fixed income business this year. Senior people - including Ken deRegt, the former head of Morgan Stanley's fixed income operation have been leaving of their own accord. And yet in London at least, Morgan Stanley has also been hiring for fixed income. To an outsider, it looks like a business without a clear strategy, where existing senior staff are getting out and 'upgrades' are being hired on the open market.
Morgan Stanley may yet prove that it knows what it's doing in fixed income. However, questions remain whether its latest plan of maintaining a small fixed income business will prove viable in the long run. As the chart below, from analysts at Sanford Bernstein, demonstrates, Morgan Stanley has one of the lowest fixed income market shares of all leading banks. This doesn't bode very well in an area of the industry where scale is increasingly important.