MORGAN STANLEY is to eliminate 1,600 jobs as the bank readjusts its workforce in response to new capital requirements, restrictions on trading and a sluggish global economy.

The cuts, which will begin next year, amount to nearly 3 per cent of its global personnel, and will be spread across the company, the bank said.

Financial advisers will be spared, but employees in the company’s fixed-income unit are likely to suffer a higher proportion of the lay-offs as Morgan Stanley sheds assets that require it to hold more capital.

News of the job cuts come as banks in Europe and the US pare back their operations and shed assets as developed economies struggle to grow after the financial crisis. Banks face heightened requirements from regulators that are likely to make them smaller.

Banks worldwide have announced more than 200,000 lay-offs this year as investors increasingly question valuations and punish bank stocks.

“Banks had hoped the environment would pick up but clearly it has not,” said Richard Staite, analyst at Atlantic Equities. “They can’t just sit there and do nothing – they have to take action.”

Morgan Stanley’s lay-offs are, Mr Staite said, “just the start of a bigger trend”.

“This will be a continued theme into 2012. I don’t think the banks have yet repositioned themselves for this new world.”

Before yesterday’s announcement Morgan Stanley’s workforce had been reduced by only about 200 employees compared with last year, according to its latest quarterly filing with the US Securities and Exchange Commission.

Barring extraordinary events, like a meltdown in Europe, the bank is not planning further job cuts in 2012 beyond the 1,600 announced. The company will re-evaluate the size of its workforce for 2013 at the end of next year, said spokesman Mark Lake.

Morgan Stanley shares are down about 45 per cent this year, and they are trading at about half of book value. Shares of its main US competitor, Goldman Sachs, trade at about three-quarters of book value.

Morgan Stanley’s stock price rose about 1 per cent as of midday in New York. – (Copyright The Financial Times Limited 2011)