June 22, 2013 / 13:27 IST
Morgan Stanley MWD will cut jobs and reduce its presence in certain commodities markets as the investment bank reacts to a sharp fall in revenues for Wall Street banks due to increase regulatory and capital costs.
More News From Financial Times
Morgan Stanley chief seeks to reassure on jobs Morgan Stanley: happily married Riverstone leads talks on $1bn commodities venture Crdit Agricole set to cut costs by 15% Crdit Agricole arm looks to curb costs The move by one of the largest players in the global resources markets is the latest indication of how commodities are falling out of favour among banks, who only a few years ago were clamouring to expand their activities in the sector.
Morgan Stanley's cutbacks, announced in a memo to staff on Thursday seen by the Financial Times, fall short of the significant business exits and job losses that other banks, including Barclays and Deutsche Bank, have implemented in commodities in recent months. Several other banks, including Credit Agricole and UBS, have closed almost entirely their commodities businesses.
Colin Bryce and Simon Greenshields, co-heads of global commodities, told staff in an internal memo that the "recent market environment has created some challenges", announcing the closure of the agriculture, dry freight and Australian power businesses and a reduction of the bank's footprint in EU power and gas.
But the bank also said it will invest in others areas, such as the US where it hopes to profit from the shale revolution, and retail investor products.
The job losses and business changes come as Morgan Stanley continues to ponder a sale or a joint venture for its commodities business in the face of the Dodd-Frank financial reform. Mr Gorman has in the past indicated that the bank was exploring "all form of structures" for its commodities business.
James Gorman, chief executive, is revamping Morgan Stanley by building up its retail brokerage and wealth management businesses, which have steadier revenues and use up less capital than trading, whose profitability has been hit by new regulatory requirements.
The changes, which include the closure of dedicated commodities offices in Dubai and Shanghai, would reduce the bank's headcount in commodities by 10 per cent, or about 30-35 people, according to people familiar with the situation. Morgan Stanley confirmed the contents of the memo, but declined to comment further.
Mr Bryce and Mr Greenshields said the "commodities revenue pool available to [banks] has fallen by almost 50 per cent from the peak years of 2007-2009".
Although they said that much of the decrease was cyclical, they added: "The revenue pool has also been impacted by certain secular headwinds - such as increased regulatory compliance and capital costs as well as changes in the way in which clients interface markets."
Morgan Stanley, together with rival Goldman Sachs, was among the first big banks to create trading arms that specifically dealt in commodities. The big oil derivatives businesses of both institutions earned them the collective nickname of the "Wall Street refineries".
The commodities business boomed between 2002 and 2007, when revenues surged across the investment bank sector to a peak of more than USD15bn. But since then they have fallen to about USD7-USD8bn.
Morgan Stanley, which saw revenues of as high as $2.5bn in 2007-09, has seen commodities sales to drop to USD1.1-USD1.2bn, according to rival executives. The bank said in its memo that it has outperformed its peers "by delivering revenue that places us in the top two".
