Morgan Stanley About-Face

So much for opportunistic hiring.

Three months ago, Morgan Stanley created a stir when Chief Executive John Mack signaled that much of its $1 billion savings from previous layoffs was being used to hire new talent. That optimistic stance made the firm something of an outlier among bulge-bracket institutions, which by and large were in retrenchment mode even before Lehman Brothers' Sept. 15 bankrutpcy filing ushered in the latest phase of decomposition for the industry.

Now, Morgan Stanley has been forced into a major about-face. On Wednesday two senior executives revealed plans to fire as many as 4,600 workers from its institutional securities and investment management businesses, while expanding its nascent retail banking operation.

The bank will cut institutional securities staff by 10 percent and the asset management group by 9 percent, Chief Financial Officer Colm Kelleher and Co-President James Gorman said at a Merrill Lynch conference on banking and financial services investment.

Morgan Stanley employed 46,383 people at the end of August. It reportedly cut 4,400 jobs earlier this year.

Its institutional securities division subsumes investment banking, trading and prime brokerage, among other activities. A presentation posted on its Web site explains that the division will focus on pursuing "attractive risk-adjusted return on capital" businesses and will "resize cost base and headcount to match current opportunities."

In the Line of Fire

Areas targeted for reductions include prime brokerage, proprietary trading, principal investments and commercial real estate origination. But the presentation also says Morgan Stanley plans to "maintain / grow" the division in several areas including cash trading, equity derivatives, foreign exchange, rates, commodities, corporate credit, mergers and acquisitions, and capital raising.

Restructuring the asset management business includes "closing / consolidating non-performing and overlapping funds" and "continued focus on cost discipline," the presentation states.

While downsizing institutional activities, Morgan Stanley is ramping up in retail banking after converting to a bank holding company in September. It's eyeing "targeted acquisitions" in that space, and aims to nearly double "stable" funding (equity, long-term debt and deposits) to 50 percent of total assets from 26 percent on Aug. 31.

Morgan Stanley announced last month that it had raised $3 billion in certificates of deposit (CDs) in four weeks. Still, at the conference Kelleher acknowledged "There are no quick fixes" to become a retail banking powerhouse. "There is no magic bullet that will suddenly solve the deposit question for institutions that are moving over from wholesale funding," he said, according to Reuters.

Also Wednesday, Morgan Stanley said it hired Wachovia executives Cece S. Sutton as president of the retail banking group and Jonathan W. Witter as the group's chief operating officer.

A 30-year veteran of Wachovia, Sutton recently led the retail and small business banking operation, overseeing 33,000 employees across 3,300 locations. Witter was head of distribution.