Morgan Stanley to cut about 600 mortgage jobs

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NEW YORK, Oct 3 (Reuters) Morgan Stanley said it will slash 600 jobs in its residential mortgage business, about a quarter of the home loan work force, in the latest sign the mortgage market slump is expected to linger.

The world's second-largest investment bank said it will cut about 500 employees in the United States and another 100 in Europe -- mostly in the UK. In addition, Morgan Stanley will combine its three mortgage businesses worldwide under a single platform to be based in Irving, Texas.

Morgan Stanley said the reduced capacity reflects lower demand. The bank, though, maintains it is not exiting the mortgage business.

''Morgan Stanley remains committed to building the leading vertically integrated mortgage business and growing our Saxon Capital servicing operations despite the cyclical downturn in the mortgage markets,'' Tony Tufariello, the bank's global head of securitized products, said in a statement on Tuesday.

For years, mortgage markets were one of the biggest profit engines on Wall Street.

But there has been a steep drop in mortgage lending in 2007 as rising defaults in the subprime sector caused widespread distress among lenders and home builders that then spread to other markets.

''It's not surprising that Morgan Stanley would take a look at their prospects in the marketplace right now and bite the bullet,'' said Marshall Front of Chicago investment management firm Front Barnett Associates LLC.

In the past month, rival bank Lehman Brothers Holdings Inc said it would slash 850 employees in the United States and UK, on top of the 1,200 cut when it shut down subprime unit BNC Mortgage Corp. Credit Suisse Group plans to cut 150 residential mortgage-backed securities jobs, on top of other cuts in commercial MBS.

HSBC Holdings is closing its U.S. mortgage unit, cutting 750 jobs, while Countrywide Financial Corp, the largest U.S.

home lender, will cut 12,000 jobs, or 20 percent of its work force. Analysts expect more lenders to cut jobs.

STEP BACK? The moves mark a retreat by Morgan Stanley, which has expanded its mortgage business since 2005 under Chief Executive John Mack to make up ground lost to Lehman and Bear Stearns Cos Inc. The goal was to build a vertically integrated business that made loans, packaged them into mortgage-backed bonds and traded them.

Last year, Morgan acquired Saxon Capital, a firm that originates loans through brokers and services subprime loans.

It had taken over Morgan Stanley Credit Corp, a retail mortgage lender, from former unit Discover Financial.

The bank also has Morgan Stanley Mortgage Capital Holdings, a homegrown business that combines loans purchased from correspondent lenders.

Morgan Stanley has expanded its servicing business this year, despite the turmoil, taking advantage of a market where dozens of mortgage firms have left the business or gone bankrupt. Like its rivals, Morgan is looking at opportunities among distressed mortgage businesses.

Some firms are scouring the market for businesses they can snap up at bargain prices. Investor Wilbur Ross agreed to buy American Home Mortgage Investment Corp out of bankruptcy.

Goldman Sachs Chief Financial Officer David Viniar last month forecast mortgage markets are ''getting closer to the bottom'' and said the bank was looking at potential deals.

''There are people who will step in and pick up the pieces, and a year or two from now, this business could be gangbusters,'' Front said.

Morgan Stanley shares rose NEW YORK, Oct 3 (Reuters) Morgan Stanley said it will slash 600 jobs in its residential mortgage business, about a quarter of the home loan work force, in the latest sign the mortgage market slump is expected to linger.

The world's second-largest investment bank said it will cut about 500 employees in the United States and another 100 in Europe -- mostly in the UK. In addition, Morgan Stanley will combine its three mortgage businesses worldwide under a single platform to be based in Irving, Texas.

Morgan Stanley said the reduced capacity reflects lower demand. The bank, though, maintains it is not exiting the mortgage business.

''Morgan Stanley remains committed to building the leading vertically integrated mortgage business and growing our Saxon Capital servicing operations despite the cyclical downturn in the mortgage markets,'' Tony Tufariello, the bank's global head of securitized products, said in a statement on Tuesday.

For years, mortgage markets were one of the biggest profit engines on Wall Street.

But there has been a steep drop in mortgage lending in 2007 as rising defaults in the subprime sector caused widespread distress among lenders and home builders that then spread to other markets.

''It's not surprising that Morgan Stanley would take a look at their prospects in the marketplace right now and bite the bullet,'' said Marshall Front of Chicago investment management firm Front Barnett Associates LLC.

In the past month, rival bank Lehman Brothers Holdings Inc said it would slash 850 employees in the United States and UK, on top of the 1,200 cut when it shut down subprime unit BNC Mortgage Corp. Credit Suisse Group plans to cut 150 residential mortgage-backed securities jobs, on top of other cuts in commercial MBS.

HSBC Holdings is closing its U.S. mortgage unit, cutting 750 jobs, while Countrywide Financial Corp, the largest U.S.

home lender, will cut 12,000 jobs, or 20 percent of its work force. Analysts expect more lenders to cut jobs.

STEP BACK? The moves mark a retreat by Morgan Stanley, which has expanded its mortgage business since 2005 under Chief Executive John Mack to make up ground lost to Lehman and Bear Stearns Cos Inc. The goal was to build a vertically integrated business that made loans, packaged them into mortgage-backed bonds and traded them.

Last year, Morgan acquired Saxon Capital, a firm that originates loans through brokers and services subprime loans.

It had taken over Morgan Stanley Credit Corp, a retail mortgage lender, from former unit Discover Financial.

The bank also has Morgan Stanley Mortgage Capital Holdings, a homegrown business that combines loans purchased from correspondent lenders.

Morgan Stanley has expanded its servicing business this year, despite the turmoil, taking advantage of a market where dozens of mortgage firms have left the business or gone bankrupt. Like its rivals, Morgan is looking at opportunities among distressed mortgage businesses.

Some firms are scouring the market for businesses they can snap up at bargain prices. Investor Wilbur Ross agreed to buy American Home Mortgage Investment Corp out of bankruptcy.

Goldman Sachs Chief Financial Officer David Viniar last month forecast mortgage markets are ''getting closer to the bottom'' and said the bank was looking at potential deals.

''There are people who will step in and pick up the pieces, and a year or two from now, this business could be gangbusters,'' Front said.

Morgan Stanley shares rose $2.09, or 3.3 percent, to close at $66.10 in Tuesday trading on the New York Stock Exchange.

Reuters SBA VP0550 .09, or 3.3 percent, to close at .10 in Tuesday trading on the New York Stock Exchange.

Reuters SBA VP0550

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