We get a glimpse into the latest leading unemployment indicators courtesy of Fox Biz' which notifies that Morgan Stanley in addition to previously reported job cuts, will also be shutting another 300 branch offices and cutting as many as 1,200 jobs over the next year in an attempt to reduce overhead. The primary reason for this: "there has been a significant slowdown in small investors turning to brokers to execute orders; many investors are sitting on cash because they are fearful of the recent volatility in the markets. Because of the declining retail order flow, every major brokerage firm will have to cut staff, Morgan even more so because of the overlap from the Smith Barney acquisition." Apparently promises by the SEC and the quant/HFT community that the May 6 crash will never, ever repeat again are insufficient to placate the investing population which is now justifiably turning its back on equity investments, as seen by last week's massive ongoing outflow from domestic equity mutual funds. Absent Obama making another March 2009-like appearance discussing attractive "profit and earnings ratios", we don't see a material catalyst to change risk perceptions.
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With the merger, Morgan will have 18,000 brokers, and will be the largest sales force on Wall Street, ahead of long-time leader Merrill Lynch, now part of Bank of America (BAC: 15.04, -0.2875, -1.88%), which has about 15,000 brokers. The spokesman also said that the firm is adding other new support staff, such as a "private banking business," designed for brokerage customers.
However, people close to the firm, say the cuts are real, and they've been serious. Morgan purchased Citigroup's brokerage unit, known as Smith Barney, in early 2009, at a time when Citi was losing money and needed to raise cash to survive. Morgan's move was designed to bolster its advisory business at a time when Wall Street began to reduce trading activities following the 2008 financial collapse. Many of the biggest Wall Street firms, including Morgan Stanley, needed a government bailout to survive the collapse after trades went sour.
Since then, there has been a significant slowdown in small investors turning to brokers to execute orders; many investors are sitting on cash because they are fearful of the recent volatility in the markets. Because of the declining retail order flow, every major brokerage firm will have to cut staff, Morgan even more so because of the overlap from the Smith Barney acquisition.
Now, some people at Smith Barney say the cuts have hit their side of the deal harder than the Morgan Stanley side. And it's not just so-called support staff that may be getting the ax, FOX Business has learned. Both Smith Barney and Morgan Stanley have research analysts who write up reports for retail customers, and those jobs have also been targeted for the cutbacks, according to people close to the matter.