As the slump in Initial Public Offerings (IPOs) and mergers on Wall Street continues to deepen this year, leading advisory firms including Morgan Stanley, Bank of America, and Citigroup have resorted to job cuts. Specifically, Morgan Stanley is planning to axe roughly 3,000 positions by the end of June, as confirmed by an individual privy to the plans. This major staff reduction accounts for approximately 5% of the New York-based bank’s workforce, excluding the financial advisors and support staff who will be spared.
The ongoing lull in IPOs, debt issuance, and mergers, which form the lifeblood of Wall Street, has significantly impacted banking and trading staff. This downturn follows a historic boom in deals spurred by the pandemic, which then took a turn for the worse last year as the Federal Reserve initiated rate hikes to cool down an overheating economy. Current IPO volumes are reportedly 74% lower than last year, as per Dealogic data. This situation has forced Morgan Stanley and other firms to grapple with their expenses as the slump proves to be more persistent than initially anticipated.
Last month, Morgan Stanley faced criticism from analysts for registering higher first-quarter costs amidst declining revenue. Expenses in the firm’s investment bank and wealth management division were particularly detrimental to profit margins. The job cuts are not unique to Morgan Stanley. The trend began in September when Goldman Sachs reinitiated a practice of dismissing perceived low performers. This move was later echoed by almost all major Wall Street firms, forcing Goldman Sachs to implement another, deeper round of layoffs in January.
Recently, major banks including Citigroup and Bank of America also cut a few hundred jobs each. These relatively surgical cuts are thought to strategically position the banks for when a rebound in deals finally occurs. Lazard, a top boutique advisor, disclosed last week that it plans to cut 10% of its workforce this year. This step was compelled by restrained capital markets activity and wage inflation that has driven up salaries across banking.