Morgan Stanley said it will eliminate 1,600 jobs in its first sweeping cutbacks since the financial crisis, joining the legions of financial firms slashing staff at a time of soft revenue and acute economic uncertainty.
The cuts amount to 2.6% of the New York securities firm's work force and represent an about-face from the company's recent hiring push. Morgan Stanley made 400 hires starting in late 2009 in a bid to bolster its trading business, which at the time was a source of giant profits for Wall Street firms.
But trading profits have been hit by turbulent markets and advisory businesses are under pressure amid questions about the prognosis for the global economy, as Western economic growth remains sluggish and Europe's debt crisis smolders. Facing those troubles and tightening regulatory requirements, banks have been cutting back.
The layoffs, to take place globally across all of the company's job levels, represent the largest number of job cuts for the investment bank since late 2008 and early 2009 when it laid off more than 2,500 employees. Morgan Stanley reported 62,648 employees as of the end of the third quarter.
These cuts, though, won't be in client-flow businesses and will have less impact on areas such as the company's equities division where its revenue has climbed this year despite turbulent market conditions.
Within the trading business, layoffs will instead occur in some capital-intensive fixed-income businesses such as securitization, structured credit and related areas including correlation trading—units where Morgan Stanley must hold a higher capital cushion against risky assets. Banks such as Morgan Stanley are looking to build capital under international regulatory standards being phased in over the coming years.
The cuts will include some investment bankers and their staffs.
A company spokesman confirmed the layoffs would follow Morgan Stanley's "year-end performance-management process" and its evaluation of the "right size of the franchise."
Following the reduction, Morgan Stanley's global work force could drop to just over 61,000 early next year, though the company may elect to add personnel in select areas and boost that figure.
While the job cuts will extend into Morgan Stanley's global wealth-management unit, none of the firm's roughly 17,290 financial advisers will be affected, the spokesman said.
Banks across the financial-services industry, including Goldman Sachs Group Inc. and Citigroup Inc., have slashed their head counts since last spring due to subdued client-activity levels as concerns about the European debt crisis have swirled and high market volatility has persisted.
Before Thursday, Morgan Stanley hadn't disclosed any widespread job cuts, though it had already launched a three-year expense-savings initiative, in which it plans to save $1.4 billion.
For Morgan Stanley, the layoff news came as Wall Street continues to slash quarterly earnings estimates on the company and its main rival, Goldman Sachs, due to weak capital-markets conditions and a challenging trading environment.
Earlier Thursday, Barclays Capital analyst Roger Freeman chopped his fourth-quarter earnings estimate on Goldman Sachs to 75 cents a share from $1.75 and reduced his Morgan Stanley outlook to a loss of 81 cents a share from 22 cents a share, due in part to a large charge from the company's settlement with MBIA Inc.
Mr. Freeman said "industry investment-banking revenue is expected to post its weakest quarter since the first quarter of 2009 with trading businesses not far behind."
News of the planned layoffs at Morgan Stanley was reported earlier Thursday by Bloomberg News.