At least half a dozen corporate bond professionals in sales, trading and research have departed Morgan Stanley this month in what market participants say may be the tip of the iceberg. Several more credit staffers are expected to leave in the coming weeks because of lower-than-expected annual bonuses while others may be forced out as the firm pares its cash bond trading operation. An official confirmed it has begun to make cuts to its corporate bond sales and trading overhead as it focuses on higher-margin derivative businesses such as credit default swaps. While the focus on synthetics is certainly a trend across Wall Street, market participants say Morgan Stanley is particularly aggressive in refocusing its efforts.
The departed staffers include Mike Donoghue, head of U.S. credit sales, Catherine Frey, executive director in high-yield sales, and Tom Thees, head of investment-grade trading for North America. Also on the move is Mark Badner, executive director in high-yield sales, who was reportedly one of the firm's top producers (see related story, page 6). Donoghue, Badner, Frey and Thees are not being replaced. Their duties are being absorbed by existing members on the desk.
A head of sales and trading at a rival firm said he has received numerous unsolicited phone calls from Morgan Stanley salesmen and traders trying to get out in front of cuts, which are anticipated in the coming weeks. Bonuses for professionals in the cash bond business were reportedly lower at Morgan Stanley than at other houses, apparently in a not-so-subtle indication of where the firm is focusing. For example, one outsider noted if a Morgan Stanley credit sales desk had roughly 15-20 professionals working on it and about six of those are executive directors or managing directors, "they're not going to pay six people on a cash desk seven figures any more."
Mitch Petrick and Jim O'Brien, co-heads of the corporate credit group, which includes cash and synthetics, were unavailable for comment. Mark Lake, spokesman, would not address reasons for the recent departures or whether the firm plans to make cuts in the near term. The firm announced this fall it would merge its investment-grade, high-yield, distressed and credit derivatives divisions to form its corporate credit group. This appears to have precipitated resignations and layoffs. "The changes are part of our commitment to improve efficiency," Lake said. The size of Morgan Stanley's cash sales and trading force in credit could not be determined by press time.
Donoghue, who market participants say is retiring, did not return calls to his cell phone. The high-yield sales operation will be assumed by Roger Gilbert, head of loan sales. Frey, who was at Morgan Stanley for two years and previously worked in a similar role at Bear Stearns, declined comment when reached at home. Meanwhile, Thees is joining MarketAxess Holdings as chief operating officer. He was vacationing in the Bahamas last week and could not be reached.
Morgan Stanley has lost senior credit researchers as well, in what appear to be unrelated departures. Bala Ramakrishnan, executive director in high-yield research has joined Credit Suisse First Boston as director in an internal hedge fund. He declined comment on the reasons for his departure. Akiba Cohen, executive director in high-grade research, has also joined Sigma Capital Management in New York (see story, page 6).
