Morgan Stanley Slashes Mortgage Business

NEW YORK (Reuters) – Morgan Stanleywill slash 1,000 jobs, scale back its U.S. residential mortgageoperations and shut down British home lending unit Advantage Home Loansas new management takes a hard look at the continued deterioration inmortgage markets.

The cuts will effect employees that engaged in wholesale andcorrespondent mortgages, generating loans through brokers and otherthird parties. The company said the moves also mean undisclosedreductions in people who packaged these loans into bonds that couldthen be sold and traded.

Morgan Stanley is closing its British mortgage origination business,but will continue servicing through its Morgan Stanley MortgageServicing Ltd unit.

A year after investment banks first revealed that a housing slumpwas leading to subprime mortgage losses, the market for mortgage-backedsecurities remains effectively frozen. As a result Wall Street firms,which built up home lending businesses that could feed theirsecuritization activities, have no place to sell these assets.

Rather than get stuck holding these loans, banks like Morgan Stanley and Lehman Brothers have been cutting back on loan production.

Spokesman Mark Lake said many of the people being cut will beinformed today. The company expects costs related to these moves willbe immaterial and declined to elaborate where cuts were made.

The cuts come about two months after co-President Zoe Cruz wasforced out for her role overseeing a debt capital markets business thatsuffered billions of losses from an ill-conceived bet on mortgages. Thefirm shook up management of the investment banking and tradingbusiness, leaving Michael "Mitch" Petrick in charge of all securitiestrading.

Morgan said it will continue to service mortgages ? which meanssending bills and collecting payments for loans ? in the United Statesthrough Saxon Mortgage Services.

The bank also will still sell residential mortgages to its brokerage clients through Morgan Stanley Credit Corp.

Morgan Stanley joins well over 100 mortgage lenders that haveslashed jobs or gone out of business in the last year as the U.S.housing crisis deepened and credit conditions worsened.

The move also represents an about-face for Morgan Stanley, whichexpanded its mortgage business after John Mack took over as chiefexecutive in June 2005. At the time, mortgage underwriting and tradingwas a profit engine for Wall Street, and banks scrambled to close thegap against leaders like Lehman Brothers and Bear Stearns.

Morgan acquired Advantage Home Loans in December of 2005 and thenbought Saxon Capital Inc, a residential lender and servicer, for $706million in December 2006.

Lake, the Morgan spokesman, would not disclose how many peopleworked in Morgan’s mortgage businesses. Mortgage Stanley Credit Corpwill employ about 100 people after the cuts.

Company-wide, Morgan Stanley had 48,256 employees.

(Reporting by Jonathan Stempel and Joe Giannone; Editing by Tim Dobbyn)

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