Morgan Stanley to Cut Deeper, Experts Say

The firm is under pressure to improve results and is trying to boost its ownership in the Morgan Stanley Smith Barney venture with Citi

The Morgan Stanley headquarters in Times Square. (Photo: AP) The Morgan Stanley headquarters in Times Square. (Photo: AP)

Morgan Stanley appears to be mulling the closure of some wealth-management complexes, trimming support staff and boosting production levels at some branches, according in industry experts and several news reports on Tuesday.

“What is surprising to me is that they have picked this time to cut staff, which risks hurting service levels by putting more decisions into the hands of fewer people,” said Danny Sarch of Leitner Sarch Consultants, in an interview on Wednesday. “I question the timing of this, especially since the advisor population is already stressed because of technology challenges. They risk hurting the service level at the worst possible time.”

A company spokesperson declined to comment on the latest reports about cost-cutting, which follow several rounds of advisor layoffs over the past two years or so.

James Gorman, CEO of Morgan Stanley Morgan Stanley, which is led by James Gorman (left) recently announced a 50% drop in second-quarter profits, which totaled $563 million, compared with profits of $1.19 billion a year ago. (After a negative adjustment of about $1.7 billion, or $1.02 per diluted share, related to a stock conversion, the bank reported a loss of 36 cents a share a year ago, compared with second-quarter earnings of 28 cents a share this year.)

It also said that the number of Morgan Stanley Smith Barney (MSSB) advisors dropped 2% from last quarter and 6% from last year to 16,934.

Morgan Stanley (MS) and Citigroup (C) continue to dispute the value of the Morgan Stanley Smith Barney joint venture, in which Morgan Stanley would like to raise its stake by 14% from 51%.

Citigroup has placed the full value of MSSB at $22 billion, while Morgan Stanley says it’s worth only $9 billion (though its SEC filings put the value closer to $12 billion).

Both banks are now working with Perella Weinberg Partners on an appraisal, which could give it a value of closer to the $15 billion that Wall Street analysts have given it. The process could be wrapped up by September.

“The best firms in the business put clients first and advisors, and then they create client and advisor loyalty to build shareholder value,” explained Sarch, who notes that the valuation dispute puts Morgan Stanley in “an awkward situation” and, at the same time, the firm is under stress to improve earnings.

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