its cost-cutting effort, largely through personnel reductions. Analysts said the actions could result in annual expense savings of $600 million by the end of next year, topping the New York company's previously stated target of $300 million to $500 million, of which $400 million was to go straight to the bottom line. The $298 billion-asset banking company also had said it wanted to reinvest any additional savings in its lines of business. But shortfalls in revenue led to deeper cuts than originally contemplated. Morgan's shares closed Monday's trading down $4, to $99.75. Sources close to the company said Morgan will reduce its work force by about 4.5%, or 740 positions, by the end of this year. That comes on top of a first- quarter restructuring program that eliminated nearly 800 positions from throughout the bank. "They are right-sizing their expense base," said David Berry, director of research at Keefe, Bruyette & Woods. "They have told the business heads to look for ways to cut back." These latest cuts will fall hardest on the emerging markets, investment banking, and fixed-income businesses. Those groups saw the severest declines in revenues last quarter because of global financial turmoil. A Morgan spokesman declined to elaborate, except to say the bank has been public about its desire to control expenses. "We confirmed a month ago that we would be making selected job cuts," said Joseph M. Evangelisti, the spokesman. "We also continue to hire selectively and we continue to gain market share in key businesses." Analysts said Morgan, like other banks, is using expense cuts to counter the sluggishness in revenue. Morgan's operating expenses as a percentage of combined net interest and noninterest income reached 80% at the end of the third quarter, up from 66% at midyear, because revenues fell 40% while expenses dropped only 20%. "Savings projections need to be based on a certain level of revenues," said Stephen Biggar, an analyst at S&P Equity Research. "If the revenues are weaker, and in this case they are, you need to look again at expenses." Morgan has not been the only financial company to be responding to sharp declines in top-line growth. Merrill Lynch & Co. last month announced it would lay off 3,400 employees. Morgan and most other financial institutions have preferred to make quiet, incremental cuts rather than announce broad cost-reduction programs, analysts said. Bankers Trust Corp., which posted an $488 million loss for the third quarter, has been eliminating jobs piecemeal since early October. Analysts said Bankers Trust could lay off as many as 2,000 people, or 10% of its work force, by the end of the year to meet a previously stated cost savings target of $300 million. Chase Manhattan Corp. and Citigroup have also hinted that jobs would be eliminated in market-sensitive businesses such as underwriting, investment banking, and trading. Morgan's struggle with expenses has been widely documented over the last year and has helped fuel speculation about the bank's long-term independence. Since January, the bank has found itself the subject of on- again, off-again rumors that it was in merger talks with Deutsche Bank of Germany. Though Morgan has been praised for its efforts to build equity and bond underwriting activities from the ground up, it has also been criticized for letting expenses go unchecked. Last year expenses grew 13% and revenues 6%.

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