Morgan Stanley unveils plans to cut $1 billion in costs by 2017

January 19, 2016 10:21 AM

Morgan Stanley plans to cut $1 billion in costs by 2017 by outsourcing some operations and making greater use of technology, Chief Executive James Gorman said.  

The Wall Street bank, which reported better-than-expected quarterly earnings and revenue on Tuesday, also set a return-on-equity target of 9% -11% for 2017. The bank's RoE of 8.5% for 2015 missed Gorman's current target of 10%.

Big U.S. banks have been forced to cut costs as worries about slowing growth in China, slumping oil prices and uncertainty about the timing and pace of U.S. interest rate increases hit trading and IPO activity.

"We enter 2016 with a continued focus on managing expenses across the firm," Gorman said in a statement.

Morgan Stanley is in the process of cutting a quarter of jobs at its fixed income business, revenue from which fell 8.2% in the fourth quarter.

The firm has been moving key executives, including Ted Pick and Sam Kellie-Smith, to its fixed income division from its successful equities unit to facilitate better coordination between the two businesses.

Morgan Stanley's shares rose as much as 4.5% in early trading.

Lower costs and much smaller legal bills helped Citigroup Inc and JPMorgan Chase & Co report a rise in quarterly profit last week.

Bank of America Corp also reported better-than-expected profit on Tuesday, driven by a drop in expenses and revenue growth in key businesses.

Morgan Stanley's non-interest costs fell 41% and compensation costs fell by nearly a third.

Its after-tax legal bill stood at $2.9 billion in the fourth quarter of 2014 as it settled litigation related to mortgage-backed securities and crisis-era issues.

Core numbers 

Morgan Stanley's adjusted net revenue fell 4.3% to $7.86 billion in the quarter ended Dec. 31 as revenue declined in every major business but one.

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