Whatās Going On Here?Morgan Stanley ā one of the worldās biggest investment banks ā isnāt saving anyone from tears this holiday season: it just announced plans to make this Christmas the last one for 1,500 employees globally. What Does This Mean?The job cuts ā which will mostly impact the technology, operations, and trading divisions ā are part of a year-end efficiency push from the bank. Thatās no great surprise: Morgan Stanley is currently in the middle of a familiar years-long slump in trading revenue, as more and more of its business shifts away from old-fashioned āhumansā and toward digital platforms.
Morgan Stanley is expecting the costs thatāll come with those job cuts ā from severance pay to business reorganization ā to hit its earnings by between $150 million and $200 million. But at least the bank will know where those costs came from: the firm has been in the spotlight recently after some of its traders concealed as much as $140 million in trading losses. Why Should I Care?For markets: Once bitten, twice shy.
Investment bank job cuts could be a good thing for investors in the long run, as they should make the banks more efficient and, in turn, more profitable. That could be why a group of the largest US financial companies hit their highest level since 2007 last week, having risen more than 25% this year (tweet this). Investors across the pond might be getting jealous: a similar group of European financial companies is only up 4% this year, weighed down by negative interest rates and a weak economy.
Zooming out: Wham!
Investors on Tuesday received a blunt reminder that Europeās investment banks are struggling too, with Deutsche Bank halving its revenue growth target for the next three years. The firmās blaming ultra-low interest rates, as well as steep costs involved in a strategic overhaul that includes job cuts of its own. 18,000, to be precise. |
