ReutersWe’ve heard the stories from the old timers (B.C. — Before Crisis). Back in the day trading bonds, currencies and commodities used to make money for Wall Street hand over fist.
That was then, and this is now. Fixed income, as such trading is called, is in the pits for everyone on the Street, but no one is feeling the burn worse than Morgan Stanley.
According to the Wall Street Journal, that burn is leaving a scar. Morgan Stanley has decided to cull its fixed income unit and make it much smaller than its peers’.
From the WSJ:
During the dinner at Manhattan’s fashionable SD26 restaurant, Colm Kelleher, Morgan Stanley’s president of institutional securities, said the fixed-income unit would aim to pull in $1.5 billion to $2.5 billion in quarterly revenue, significantly less than the firm’s peak of $3.39 billion in the first quarter of 2007, according to people familiar with the meeting. The unit generated $1.52 billion in revenue in the first quarter, excluding accounting adjustments.
Morgan Stanley executives believe the lower revenue will help the firm focus on more profitable business. They are targeting a 10% return on equity—a profitability yardstick—across the firm. Last quarter, Morgan Stanley had a return on equity of 7.5%, well below Goldman Sachs Group Inc.’s 12% and the 18% of J.P. Morgan Chase & Co.’s investment bank.
Bank analyst Mike Mayo said that he’d give Morgan Stanley’s fixed income unit a D grade right now, and that he’d be pleased if they got it up to a C.