Wall Street Watch: Cuts Hit Single-Family Line at Morgan Stanley,

Wall Street layoffs have hit mortgage trading desks at Morgan Stanley and Deutsche Bank especially hard.

Morgan Stanley Dean Witter & Co. fired 60 traders, salespeople, and researchers from its global bond operations last month, and Deutsche Bank fired 50 traders and support workers from its global bond operations just days before announcing a merger deal with Bankers Trust Corp. Deutsche's layoffs affected employees in commercial and residential mortgage as well as asset-backed securities.

Steven W. Abrahams, a Morgan Stanley prepayment analyst and residential strategist who was also a principal in the firm, was laid off as part of the scaling down there, an executive said. The cuts have left the firm's single-family business with eight traders, the executive said.

"We had excess capacity in terms of traders in the single-family business," the executive said. "We haven't dropped any product lines." He denied rumors that the firm was getting out of the nonagency mortgage business and declined to disclose the number of layoffs in the single- family business.

Wall Street insiders say the reduction leaves the firm with a "bare bones" staff, assuming the remaining traders cover Fannie Mae, Freddie Mac, Ginnie Mae, home equity, and jumbo loan securities.

Most major Wall Street broker-dealers have trimmed mortgage operations this year. David Lereah, chief economist at the Mortgage Bankers Association, said such cuts are part of the normal business cycle in the rate-sensitive mortgage sector.

Residential mortgage trading operations have weathered some rough seas in recent months, as investors became increasingly wary of bonds amid uncertain global markets.

"The mortgage-backed securities market several months ago was very volatile," said Mr. Lereah. "A combination of unanticipated prepayment speeds and widening spreads did lead to some losses on Wall Street. But in recent weeks, things have gotten somewhat better."

A spokeswoman said Morgan Stanley, the ninth-largest manager of mortgage-backed securities, cut fewer than 4% of the roughly 1,500 employees in its fixed-income business. Employees in research, sales, and trading were laid off, she said-45 from the New York business and 15 from London.

The job cuts at Deutsche Bank, which is ranked 13th as a manager, totaled about 10% of the bond trading staff in New York, a spokeswoman said.

Kevin Ingram, managing director for worldwide mortgage- and asset-backed securities who left Deutsche Bank at the time of the layoffs, declined to comment.

Deutsche Bank is "not getting out of any lines of business," its spokeswoman said. The bank is "committed to mortgage- and asset-backed businesses but, based on market realities, is restructuring."

The unit will focus on origination and securitization and de-emphasize proprietary trading in mortgage-backed securities, she said. Joel Horne and Richard Uhlig have been appointed co-heads of mortgage- and asset-backed securities for North America. An executive has not yet been assigned to take over Mr. Ingram's international responsibilities, the spokeswoman said.

A trader at Deutsche Bank said Mr. Ingram's departure "had nothing to do with the performance of the unit. The unit is extremely profitable." The game plan remains the same, he added, with 80% of the business focused on retail and 20% on proprietary trading.

"However, like most structured product businesses," the trader said, "the shape of the yield curve has a lot to do with the size of the position you run."

Morgan Stanley was known for having a good distribution channel, this investor said, adding that the layoffs are not of big concern to him. The reductions, he said, were part of a plan of "shifting focus to more profitable products."

Competing firms said that the layoffs at Morgan Stanley and Deutsche Bank will open up opportunities for firms that remain fully staffed in these lines of business.

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