Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

James Gorman's path to a 10 percent return on equity is beset on all sides by, well, everything.

That 10 percent-by-2017 goal looks a little further away from the Morgan Stanley boss after first-quarter results on Monday as the profitability metric slipped to 6.2 percent at the start of this year.

Setting ambitious goals like that is a perilous endeavor, as Gorman acknowledged on Monday during a conference call with analysts. It may be even more perilous for a Wall Street firm than companies in other industries because turbulence in the financial markets can send clients ducking for cover and lay waste to the best-laid plans to increase revenue.   

So the main lever in the firm's control is expenses, which Morgan Stanley is already cutting at a brisk pace under an initiative known as "project streamline." Compensation costs, for example, dropped 19 percent, to $3.68 billion, in the last quarter. Still, the expense cuts resulted in a disappointing ROE as the top line fell even more than costs. Revenue sank 21 percent, to $7.79 billion, and net income was down 53 percent. A lot of hope for the future has been pinned on the wealth-management business, yet revenue there dropped 4 percent, to $3.67 billion.   

Shrinking Staff
Morgan Stanley's headcount has fallen in recent years, and management's profitability goals raise questions about whether more cuts could lie ahead
Source: Bloomberg data, based on company filings

So the streamlining may have to get even more extreme. This is a tricky way to run a business because "streamlining" makes it difficult for employees to perform their best when they're constantly looking over their shoulders. Gorman gave them no reason to stop looking, describing the cost-cutting plan on Monday as "an aggressive evaluation of our global infrastructure costs, reviewing each product, business and geography globally, to convince ourselves that we need our footprint as it is currently configured."

Waiting for Recovery
Morgan Stanley's stock is down 19 percent this year
Source: Bloomberg

It's hard to get either employees or investors excited about a business that's aggressively cutting costs to lift earnings. Luckily for Gorman, just about every bank is cutting expenses as well, so he might not have to worry as much about the morale of employees as he does the morale of investors. Even though Morgan Stanley's earnings per share were better than analysts' estimated, the stock under-performed the market on Monday after an 8.5 percent gain last week that was its best in three years. The shares are still down 19 percent this year. 

Morgan Stanley executives are hoping that the shift toward calmer markets seen in recent weeks is here to stay. Otherwise, as Gorman said,  “if these markets were to continue as is, our goals will be extremely difficult to achieve, and we would therefore take additional appropriate actions.” Either way, the details of "project streamline" make it sound as if more job cuts, outsourcing and shifts in jobs to lower-cost cities could be coming. And it's hard to see a complete and permanent abatement of the concerns that caused the firm problems in the first quarter -- Gorman cited negative interest rates internationally, questions around Federal Reserve policy and the Chinese economy, Europe's political issues and refugee crisis. 

In other words, don't count on the 25 percent cut to Morgan Stanley's fixed-income staff to be the end of the pink slips.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Michael P. Regan in New York at

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Daniel Niemi at