Morgan Stanley announces new cost cutting plan
Morgan Stanley, after announcing its 4Q earnings, has announced new measures aiming at another $1bn in cost savings, in a project to be known as 'Project Streamline'. It also said that 25% of jobs in its fixed-income and commodity units have already been cut. The bank aims to use the cost savings to boost its return on equity from 7% to a range of between 9% and 11%. The cost savings will ultimately be returned to investors, the bank's CEO, James Gorman said.

Kaja Whitehouse

USA TODAY

NEW YORK-- Morgan Stanley, known for its work with tech giants like Facebook and Alibaba, said it slashed 25% of jobs in its fixed-income and commodity units as part of a larger restructuring that is expected to boost returns to investors.

Banks that make money off trading, including Morgan Stanley, JPMorgan Chase and Goldman Sachs, have been struggling with a slowdown in trading fees as large investors step away from dealing in bonds and commodities. This led Morgan Stanley to eliminate 1,200 jobs in December and exit certain areas of trading, such as Asian distressed debt.

In addition to the job cuts, the New York investment bank vowed to cut expenses across the firm by more than $1 billion by 2017 as part of a plan it is calling "Project Streamline."

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"Project Streamline is designed to identify significant expense reductions," Morgan Stanley CEO James Gorman said in a conference call with investors and analysts. 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,

Morgan Stanley aims to use the cost savings to boost its return on equity, a measure of profitability, from 7% to a range of between 9% and 11%. The cost savings will ultimately be returned to investors, Gorman said.

Morgan Stanley shares rose in early trading on the cost-cutting initiative, and on earnings that were better than analysts had anticipated, before falling back down to earth. The stock recently traded flat at $25.94 a share.

Morgan Stanley earned $908 million, or 39 cents per diluted share in the three months ended in December. That compares to a net loss of $1.6 billion, or 91 cents a share during the same period last year due to a series of one-time items including $3.1 billion in litigation costs.

The bank reported revenue of $7.7 billion, down from $7.8 billion a year ago as it struggled with losses in fixed-income trading and underwriting.

Wall Street analysts had expected Morgan Stanley to earn 34 cents a share on revenue of $7.4 billion, according to data from S&P Capital IQ. The bank performed better than expected due to growth in its merger advisory business and stock sales and trading.

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In addition to a slowdown in trading, the banking industry is also facing deteriorating energy investments, which could squeeze earnings in 2016.

Bank of America, which also posted results Tuesday, said it took a $500 million reserve on souring energy loans in the fourth-quarter. Loans in other areas remained strong, however, including an uptick in small business loans, executives said in a conference call.

BofA's fourth-quarter results beat Wall Street's profit expectations, but fell short on revenue.

Big banks generally are adding to their cushions against bad energy loans as oil prices fall to 12-year low at around $30 a barrel. Such cushions increase costs, which crimp profits.

BofA said it earned 28 cents a share in the three months ended in December on revenue of $19.5 billion, up from profits of 25 cents a share on revenue of $18.9 billion last year. Analysts had expected Bank of America to earn 27 a share on revenue of $19.9 billion, according to data from S&P Capital IQ.

Follow USA TODAY reporter Kaja Whitehouse on Twitter: @kajawhitehouse