As a new decade begins, analysts and strategists at investment banks around the world are making their predictions for 2020 and for the decade ahead. These are sometimes interesting, occasionally amusing – but it is often wiser to pay attention to what these firms are actually doing, rather than what they are saying.
News broke in December of 1,500 job losses across its businesses, a proportion being in technology and operational support. It doesn’t seem like a big story. It appears that no particular geography or business line has been picked out for retrenchment. It does sound like a lot of people. But then Morgan Stanley has roughly 60,000 employees and it didn’t even bother to make an official comment on reports it might be cutting just under 2% of its workforce.
What strikes Euromoney is that Morgan Stanley is not one of those firms that routinely cuts its bottom percentile performers, unlike certain other investment banks that do so ruthlessly every year, so as to encourage the survivors.
Its performance in 2019 was fairly strong and stable, with $10 billion of revenue each quarter through the first nine months and no outward signs of any horrors lurking.
Yes, there were a couple of late stumbles. There were stories in November that a number of FX options traders had been suspended over concealed losses in Turkish lira perhaps amounting to $150 million. We’ll see when Morgan Stanley announces fourth quarter 2019 results later in January.
Then in December, France’s Autorité des Marchés Financiers (AMF) fined it $20 million over allegations of manipulating sovereign bond prices back in 2015.
Cutting its cloth
These don’t look like the kinds of events that would force large-scale cost cutting.
This looks like a firm that has assessed the revenues likely to come in 2020 – an election year in the US that begins with uncertainties around US-China trade negotiations, Brexit, unrest in Latin America, the Middle East and Hong Kong, all constraining corporate executives’ inclination to invest – and is cutting its cloth accordingly.
Insiders say its base case is not for a recession in 2020. But the revenue pool in investment banks and global markets is shrinking. Growth will only come from taking a larger share of a smaller client wallet.
Morgan Stanley is not alone in all this, of course. The European firms are having an even worse time. Credit Suisse announced in December that its investment banking and capital markets division will post a loss for 2019.
To see one of the US winners in global investment banking cutting jobs is a reminder that, whatever the strategists’ optimistic projections may say, 2020 could be a very tough year.