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Last Christmas

Finimize

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Finimize
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What’s going on?

Morgan Stanley – one of the world’s biggest investment banks – isn’t saving anyone from tears this holiday season: it just announced plans to make this Christmas the last one for 1,500 employees globally.

What does this mean?

The job cuts – which will mostly impact the technology, operations, and trading divisions – are part of a year-end efficiency push from the bank. That’s no great surprise: Morgan Stanley is currently in the middle of a familiar years-long slump in trading revenue, as more and more of its business shifts away from old-fashioned “humans” and toward digital platforms.

Morgan Stanley is expecting the costs that’ll come with those job cuts – from severance pay to business reorganization – to hit its earnings by between $150 million and $200 million. But at least the bank will know where those costs came from: the firm has been in the spotlight recently after some of its traders concealed as much as $140 million in trading losses.

Why should I care?

For markets: Once bitten, twice shy.

Investment bank job cuts could be a good thing for investors in the long run, as they should make the banks more efficient and, in turn, more profitable. That could be why a group of the largest US financial companies hit their highest level since 2007 last week, having risen more than 25% this year. Investors across the pond might be getting jealous: a similar group of European financial companies is only up 4% this year, weighed down by negative interest rates and a weak economy.

Zooming out: Wham!

Investors on Tuesday received a blunt reminder that Europe’s investment banks are struggling too, with Deutsche Bank halving its revenue growth target for the next three years. The firm’s blaming ultra-low interest rates, as well as steep costs involved in a strategic overhaul that includes job cuts of its own. 18,000, to be precise.

Originally Posted on December 10, 2019 – Last Christmas

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