NEW YORK Morgan Stanley (MS.N) will slash 1,000 jobs, scale back its U.S. home-lending business and shut down a British mortgage unit as new management takes a hard look at the continued deterioration in mortgage markets.
The cuts announced on Wednesday affect Morgan Stanley employees who generate home loans through brokers and other third parties, as well as bankers who packaged these loans into bonds. The bank declined to detail cuts for specific areas.
Including the latest moves, Morgan Stanley has laid off 2,900 people in mortgages, wealth management, investment banking and capital markets since October. That's 6 percent of Morgan Stanley's 48,256 employees at the end of November.
The latest job losses are part of a series of cutbacks on Wall Street that indicate investment banks don't expect the mortgage crisis to end soon.
"For anyone expecting a housing market recovery, you have to push out your expectations," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati. "We see 2011 as the earliest when the market will get back to a good footing."
Morgan Stanley also is closing its British mortgage origination business, but will continue servicing loans through its Morgan Stanley Mortgage Servicing Ltd unit. British mortgage approvals for house purchases in December fell for a seventh consecutive month to the lowest level since 1999.
Morgan spokesman Mark Lake said many of the people being cut would be informed on Wednesday. Costs related to these moves will be immaterial to earnings, he said.
A year after investment banks first revealed that a housing slump was leading to subprime mortgage losses, the markets for mortgage-backed securities and CDOs remain effectively frozen. After ramping up lending capacity to feed the securitization machine, banks have no place to sell these assets.
Morgan Stanley joins well over 100 mortgage lenders that have slashed jobs or gone out of business in the last year as the housing crisis deepened and credit conditions worsened.
Last month Lehman Brothers Holdings Inc LEH.N cut 1,300 mortgage jobs and closed its wholesale lending business, for a total of 3,750 job cuts since June 2007.
Morgan's latest cuts come about two months after co-President Zoe Cruz was forced out for her role overseeing a debt capital markets business that suffered $9.4 billion in fourth-quarter losses from an errant mortgage trade. A management shake-up left Michael "Mitch" Petrick in charge of all securities trading.
Morgan said it would still service mortgages -- sending bills and collecting payments for loans -- in the United States through Saxon Mortgage Services. The bank also will make home loans to brokerage clients through Morgan Stanley Credit Corp, which will employ about 100 people after the cuts.
Yet Morgan Stanley has essentially reversed course in the span of two years. After John Mack took over as chief executive in June 2005, Morgan was one of several banks that expanded their mortgage businesses.
For years underwriting and trading mortgage securities helped fuel record profit for leaders like Lehman and Bear Stearns Cos Inc BSC.N, prompting rivals to play catch-up.
Morgan acquired Advantage Home Loans in December 2005. It also bought Saxon Capital Inc, a U.S. residential lender and servicer, for $706 million in December 2006, just as the mortgage business was going sour.
"I give them credit for recognizing a mistake and moving on," Fifth Third's Wirtz said. "They recognized there is nothing here and are pulling back."
(Additional reporting by Jonathan Stempel; Editing by Tim Dobbyn and Braden Reddall)