More U.S. banks are taking cost-cutting measures that are a clear indication of the negative economic climate. Morgan Stanley (MS) has reduced its compensation plan for its brokers in an effort to hit a pre-tax profit margin in the mid-teens, while JPMorgan Chase & Co. (JPM) is shrinking its bonus pool for its corporate and investment division. The question many are asking now is how many other U.S. banks will follow in the footsteps of Citigroup (C) by making deep cuts that include job eliminations.
The banking industry is taking blow after blow from the current negative economic climate. Many of the largest banks in the U.S. are reporting negative news of some kind, and analysts think the hits could keep coming in the near future.
Bloomberg reports that Morgan Stanley (NYSE:MS) has altered its compensation plan for its brokers in an effort to raise more revenue and enable them to purchase discounted stock. The program starts next year and pays a bonus between 2 and 5 revenue percentage points for brokers who are in the top 40 percent in revenue growth. That’s a reduction of 2 percentage points in the revenue bonus, which was previously paid to all brokers generating $750,000 or more in revenue.
The cost-cutting move is designed to help Morgan Stanley (NYSE:MS)’s wealth management division keep employees from leaving, while still hitting a target of a pre-tax profit margin in the mid-teens. The change doesn’t apply to the grid payout, which is usually most of each broker’s compensation, or any tenure bonus. The plan also allows brokers to invest up to $250,000 of their earnings in Morgan Stanley (NYSE:MS) stock and then receive up to a 25 percent bonus on any shares they buy, which will vest in April 2016.
JPMorgan Chase & Co. (NYSE:JPM) has also announced cost-cutting moves that will affect its employees. The New York Post reports this morning that the bank is shrinking its bonus pool for its corporate and investment division by up to 2 percent. However, we won’t know the exact amount until the bank closes out its books for this year.
It certainly seems as if the cost-cutting measures at Morgan Stanley (NYSE:MS) and JPMorgan Chase & Co. (NYSE:JPM) could just be the tip of the iceberg when it comes to banks following in Citigroup Inc. (NYSE:C)’s footsteps this quarter.
ValueWalk reported on Citigroup Inc. (NYSE:C)’s cost-cutting measures on Thursday. The bank cut 11,000 jobs, taking a $1 billion charge against its current quarter in order to reduce next year’s expenses by $900 million and the following year’s expenses by $1.1 billion.
RBC Capital analysts feel that Citigroup Inc. (NYSE:C) was just the first in a long line of large U.S. banks that would cut jobs this year. So far, no other major U.S. banks have announced such massive layoffs in recent months, although major banks based in other countries are tightening the belt, and the financial industry as a whole has been feeling the pain for some time.
Credit Suisse Group AG (NYSE:CS) recently announced more job cuts on top of the cuts it made earlier this year, and UBS AG (NYSE:UBS) announced that it would cut 10,000 jobs in October. Last year more financial jobs were eliminated at Bank of America Corp (NYSE:BAC) and HSBC Holdings plc (NYSE:HBC) (LON:HSBA).