The Telegraph
Since 1st March, 1999
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Austerity drive at Morgan Stanley

New York, Nov. 12: As if times were not tough enough for stockbrokers in a bear market, now more of them are being laid off.

Morgan Stanley is dismissing about 750 of its least productive brokers and closing some of its branches as the firm retrenches from the rapid growth plan it set a few years ago, executives said Monday. After eliminating the brokers by the end of the year, Morgan Stanley will have about 12,000 brokers in the United States, down about 10 per cent from a peak of 14,300 in the summer of 2001.

Rumours have been circulating on Wall Street that the firm would lay off anywhere from 10 per cent to 20 per cent of its brokers, but John H. Schaefer, president of the brokerage unit, said those numbers were far too high. He said that the brokers being dismissed were “chronic underperformers” who generate only about 2 per cent of the unit’s revenue.

Morgan Stanley is planning to eliminate more than 10 per cent of the space it has for brokers in its 500 branches, which it measures in “seats”, he said. All told, it will eliminate a few thousand seats for brokers, but most of them are empty, either because of attrition or because they were never filled. Doing so will save the firm some of the money it spends on rent.

Brokerage firms rarely lay off brokers, because employing them costs relatively little and those who do not earn a healthy income usually give up on their own. But Morgan Stanley is under pressure to reduce costs in its brokerage operation, formerly known as Dean Witter, deep into a slump in the stock market.

“This is an unusual situation, maybe a unique situation,” said Guy Moszkowski, an analyst at Salomon Smith Barney. Morgan Stanley has to cut brokers fast now because, unlike its main competitors, it continued hiring well past the end of the bull market, he said.

The moves are a prelude to a push by the firm to tailor its brokerage services to customers based on their wealth and investing habits, said Stephen Liguori, the unit’s chief marketing officer. The firm is also changing the way it trains brokers to put more emphasis on advising clients on achieving their financial goals and less on selling them the firm’s mutual funds, Schaefer said.

“The big disconnect we have is with what the historic Dean Witter was all about,” Schaefer said, describing those customers as distinctly middle class. “We’re trying to move the business to where the Morgan Stanley brand has always been.”

The firm has about as many brokers as Merrill Lynch & Co., but they produce less revenue than Merrill’s brokers. Instead of continuing to recruit new brokers rapidly as it did through last year, Morgan Stanley has turned its focus to making its brokers more productive and attracting more customers with $ 1 million to $ 10 million to invest.

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