Layoffs could be coming to Morgan Stanley's wealth management business at a critical time

Published Thu, Feb 15 20243:13 PM EST

Layoffs could be coming to Morgan Stanley's crucial wealth management business — a prudent step to improving the bank's overall cost structure amid uncertainty over Federal Reserve interest rate moves. Morgan Stanley has plans to cut several hundred employees in the division as new CEO Ted Pick tries to keep costs in check, the Wall Street Journal reported on Wednesday. While impacting less than 1% of the division's workforce, the cuts represent Pick's first big move at the helm of the firm and Morgan Stanley's need to drill down on expenses. Morgan Stanley declined CNBC's request for comment. Pick, a veteran of the bank, officially took the reins from longtime CEO James Gorman on Jan. 1. During his tenure at the helm, Gorman pivoted Morgan Stanley to rely less on investment banking by building up wealth management, which has a more predictable revenue stream. MS YTD mountain Morgan Stanley (MS) year-to-date performance Possible layoffs in wealth management are important because it's Morgan Stanley's largest operating segment — making up roughly half of companywide revenue. Any reductions there can have an outsized benefit toward reducing costs to stay on track to meet, and hopefully exceed, Pick's conservative reset guidance . Despite delivering in mid-January a better-than-expected fourth quarter, shares dropped more than 4% on earnings day as investors worried about the picture the new CEO was painting for the future. It didn't help that Q4 results for all of the major banks were rather messy as they were forced to pay the FDIC back for rescuing regional lenders after last year's failure of Silicon Valley Bank. On the post-earnings call, Pick said the bank was far from reaching management's previously issued goal of 30% operating margins for wealth management. To make matters worse, he said that headwinds such as geopolitical conflicts and the state of the U.S. economy could weigh on profits. Elevated interest rates have continued to pressure margins. (And, Tuesday's hotter-than-expected inflation data certainly hurt the case for a near-term start of Fed rate cuts.) At the time, we weren't thrilled with the quarterly results. But Jim Cramer did say, "When you get this kind of cautious commentary from a new CEO, my gut says he's simply trying to lower expectations to play the [under promise, over deliver] game." He added the Club's not throwing in the towel yet on the bank stock. "Morgan Stanley's paying you to wait with that 4% yield, and they're right in there buying with you thanks to their aggressive buyback." Investors seem upbeat on word of cost-cutting efforts. Shares rose more than 2% on Thursday. Our other bank stock, Wells Fargo , rose more than 7% to a 52-week high Thursday on news the Office of the Comptroller of the Currency terminated a 2016 consent order linked to its sales practices. (Jim Cramer's Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Ted Pick, CEO Morgan Stanley, speaking on CNBC's Squawk Box at the World Economic Forum Annual Meeting in Davos, Switzerland on Jan. 18th, 2024.

Adam Galici | CNBC