How Well Is Morgan Stanley Managing Costs?



Morgan Stanley’s cost-cutting efforts

Morgan Stanley (MS) reported better-than-expected profits for the second quarter. As has been the case with peers (XLF) like JP Morgan (JPM), Citigroup (C), Bank of America (BAC), and Wells Faro (WFC), Morgan Stanley’s profits were driven by cost-cutting initiatives. In this difficult earnings environment, CEO James Gorman maintained strong cost discipline. The bank’s compensation expenses fell 9% to $4.1 billion in the second quarter, and overall non-interest expenses fell 8%. Last year, the company announced a new efficiency plan called “Project Streamline” that will reduce costs in 2017 by $1 billion, assuming no growth in revenues.

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Project Streamline

Project Streamline is designed to identify significant expense reductions. The cutbacks will eliminate redundant legal entities and relocate employees out of “high-cost centers” to less costly locations, among other simplification efforts, Gorman said. Project Streamline will also rely on technology to automate the company’s infrastructure. Morgan Stanley aims to utilize these cost savings to boost its return on equity from the current 8.5% to its target 9%–11% range. The company has also been restructuring its fixed income and commodities trading business in the past year. Last year, it reduced its fixed income staff by 25% and made several changes in top management.


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