DALLAS – Morgan Stanley is cutting 25% of its public finance team.
The public finance cuts are in line with the firm's cost-cutting plans to eliminate a quarter of its overall fixed-income workforce. A person familiar with the matter said the number of jobs being cut in public finance is lower than 70.
"We're very committed to the municipal business," the person said. "It's a high priority for our firm."
A memo to employees said the moves are designed to keep the firm "critically and credibly sized."
A company executive who asked not to be identified said the layoffs in public finance were proportional to the 1,200 jobs to be eliminated companywide.
"We did not lose anyone on our sales force, and our underwriting is intact," the executive said.
Another banker confirmed that he was among those laid off. "I'm no longer with Morgan Stanley," he said.
While plans for layoffs in the fixed-income division have been widely reported, the company has not issued any official statement about its plans.
"I haven't received anything official yet, either," a company public finance banker said.
"It's all very hush-hush," said another industry executive in Texas. "It's getting to be a very difficult time for our business. I'm sure that other investment banking firms are having a hard time, too.
"When you have spreads that are a fraction of what they used to be and you've got regulation that's very significant, and you've got big banks that are willing to lend directly to issuers, that cuts into the natural supply."
Morgan Stanley ranked fourth among senior managers for the first nine months of 2015, credited with 345 deals valued at $25.85 billion, according to Thomson Reuters data. The firm ranked fourth in 2014, credited with $27.3 billion.
The restructuring comes on the heels of Morgan Stanley's third-quarter announcement that net revenue in fixed income and commodities sales and trading fell to $583 million from $997 million, a nearly 42% drop from the 2014 quarter.
"The volatility in global markets in the third quarter led to a difficult environment, impacting in particular our fixed income business and our Asia merchant banking business," Morgan Stanley chairman and chief executive James Gorman said in the third-quarter conference call. "Our business model provides a steady foundation for the firm as we navigate these challenging markets and focus intensely on addressing areas of underperformance."
Investment banks generally trim their ranks ahead of bonuses for remaining staff, industry officials said.
In October, Morgan Stanley reported a 16% drop in non-interest-bearing revenue in the third quarter, bringing an 18% decline in compensation and benefits.
Goldman Sachs reduced compensation and benefits by 16% with an 18% drop in non-interest-bearing revenue. JPMorgan Chase reported a 7% decline in compensation after an 11% slump in revenue tied to activities like trading and investment banking.
Morgan Stanley's 25% force reduction will cut across all regions and are set to take place in the next two weeks, according to first reports by Bloomberg.
"The fixed-income environment was rough last quarter, and it remains tough," said Brennan Hawken, an analyst at UBS Group who recommends buying Morgan Stanley's stock. Hawken called the cuts a "substantial step."
Gorman said the third quarter was the worst quarter for fixed income, currencies and commodities since he took over in 2010.
The cuts at Morgan Stanley could save the company about $500 million, or about 20 to 25 cents a share, analysts said.
While Morgan Stanley has reduced the capital that its fixed-income unit requires by more than half over the past four years, the bank still hasn't reached its goal of a return on equity of at least 10%, according to Bloomberg.
