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Morgan Stanley makes prime brokerage job cuts

Date: Friday, November 21, 2008
Author: HFM Week

Morgan Stanley's global prime brokerage unit has informed staff today of substantial redundancies.

Insiders say that the scale of the cut-backs, which will apply to both the bank's US and UK operations, significantly exceed the one in ten staff expected to be culled across two of its three divisions.

Despite the unit's significant job losses, Morgan Stanley's capital introductions team, which is believed to be about 40 strong, will lose staff in line with the wider bank's 10% cuts, as the larger job losses impact on other areas of its prime brokerage business.

The move comes in the wake of Morgan Stanley's plans to 'reshape' its prime brokerage business to reflect the shrinking of the industry and the bank's recent loss of hedge fund revenues. On Wednesday, Kurt Baker, the head of Morgan Stanley's prime brokerage in Asia, was confirmed to be leaving the firm.

It is believed that the bank, which lost a third of its hedge fund business in the wake of the collapse of Lehman Brothers in September, is currently working on plans to split the division in two, separating its lending facility from its custody service.

The bank is working on plans to open a new custody wing, designed to assure clients that it has mitigated some of the risks of rehypothecation. Other prime brokers, including Goldman Sachs, are believed to be considering a similar tack or the forging of joint ventures with custodian banks.

The job losses come as Morgan Stanley attempts to win back a market share that once stood at 51%. Sources say that a return to this dominant position is unlikely, but that the unit is having some success in persuading clients to use accounts abandoned in September.

Last week, Morgan Stanley confirmed that 10% of staff from its institutional securities and asset management divisions would be in line for redundancies. Its third division, global wealth management, will escape the job losses.