Morgan Stanley Reviewing Cost Levels

Morgan Stanley Dean Witter (MWD Quote - Cramer on MWD - Stock Picks) could soon be the latest Wall Street firm to cut staff as a slowing economy and market torpor reduce lucrative investment banking and trading businesses.

A Morgan Stanley representative denies that the firm is planning on cutting between 7% and 10% of its staff. But the company is "reviewing expenses and head count issues in light of current market conditions and is looking at departments on an individual basis," says spokeswoman Judy Hitchens. "There is absolutely no plan for across-the-board or blanket cuts."

A report on the CNNfn Web site, citing a source close to the firm, said the firm asked managers to target 7% to 10% of their staff for lists of possible layoffs. But the report said it was unclear whether the lists are definitive or whether the job cuts were just under consideration.

The list of brokers who have announced staff cutbacks so far includes Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) and Bear Stearns (BSC Quote - Cramer on BSC - Stock Picks).

Brokers went on a hiring binge in recent years as a strong economy fueled lucrative advisory fees and trading commissions. But the economy has been on the wane in recent months, a slowdown that showed up very clearly in many brokerage firms' fourth-quarter results.

Sluggish market conditions have kept many investors and potential deals on the sidelines, making profit growth tough for a number of financial service firms, including Morgan Stanley, which posted a tough last quarter. The firm has already concluded its fiscal first quarter and will report earnings in late March.

After a particularly tough month in February, analysts including Merrill Lynch's Judah Kraushaar slashed profit estimates on brokerage firms. J.P. Morgan Chase's Michael Freudenstein also lowered his earnings outlook, citing the much-discussed lack of visibility.

The American Stock Exchange Broker/Dealer Index was off 0.4% Thursday, while Morgan Stanley was up 40 cents to $67.15. The broker/dealer index is off about 17% since the beginning of February.