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Week in Review

Morgan Stanley Cuts 1,000 As Mortgages Diminish

Morgan Stanley is eliminating 1,000 jobs as it scales back its residential mortgage operations in the U.S. and closes operations in the U.K. More than 100 other mortgage lenders have cut jobs in the last year, as the housing crisis continues to worsen in what some analysts are likening to a massive car pileup.

The New York financial giant will continue serving mortgages in the U.S. through the Saxon Mortgage Services Inc. platform, while its Morgan Stanley Credit Corp. will continue to offer residential mortgages to brokerage clients.

Zurich, Switzerland-based UBS AG also confirmed a fourth-quarter net loss of $11.23 billion, due to heavy losses on mortgage securities in the U.S. The bank also posted its first net loss in 10 years.

UBS currently has $27.59 billion in securities linked to subprime mortgages, down from $38.77 billion in September, according to The Wall Street Journal. Several top executives have been let go, including Chief Executive Officer Peter Wuffli, Chief Financial Officer Clive Standish and Huw Jenkins, head of investment banking.

Sources on Wall Street say that Ambach has hired Gartner Group to reengineer its operations, starting with its IT group. Meanwhile, Warren Buffett is moving large positions into reinsurance and out of collateralized debt obligations, to the surprise of some of those in the credit rating business.

Fidelity Brokerage Assets At Record $1.99 Trillion

Fidelity Investments' brokerage client assets reached a record $1.99 trillion in the fourth quarter, a 17% increase from a year ago.

Fidelity attributes the growth to market activity and increased net flows across all three brokerage units: Fidelity Retail Brokerage, Fidelity Institutional Wealth Services and National Financial.

The average daily commissionable trades rose 30% over the previous year to set a record of 408,803.

Net new client assets grew 32% to $58.5 billion, and total client accounts rose 5% to 18 million.

The firm saw growth across all of its brokerage firms over the course of the year, with net new client assets up 22% to $201.1 billion. The Institutional Advisor business added $96.5 billion, up 129%.

Yikes! Wachovia Knew Of Thefts in 2005

High-ranking Wachovia bank executives knew about fraudulent and deceptive practices by one of its telemarketing firms, but continued to provide services to them anyway, The New York Times writes.

In contrast to denials by bank executives last spring, internal Wachovia e-mail and other documents show that Wachovia was alerted by other banks and federal agencies about deceptive practices, but the bank continued to provide services to multiple companies that collectively stole as much as $400 million from clients.

"YIKES!!!!" wrote one Wachovia executive in 2005, in a warning to colleagues that an account used by telemarketers had drawn 4,500 complaints in two months. "DOUBLE YIKES!!!!" the executive added. "There is more, but nothing more that I want to put into a note."

Wachovia continued to process fraudulent transactions for that account, partly because the bank charges fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company paid Wachovia about $1.5 million over 11 months, according to investigators.

Main Street Investors Next In Line for Cascading Fixed Income Debacle?

Investors holding municipal bonds directly or through mutual funds could see their returns diminished by ratings agencies' recent downgrades of troubled bond insurers, according to a report to be presented to Congress.

"For someone intending to sell the municipal bonds before maturity, the downgrade cuts the value of the bond," said the Congressional Research Service report, sent to lawmakers last week. "How much of a loss in value would depend on how low the insurer was downgraded and the rating on the underlying bond."

Some lawmakers already are concerned and a House subcommittee has a hearing scheduled on the state of the bond insurance industry.

"The written responses of financial regulators to recent inquiries I made about the problems affecting the bond insurance industry and the shortcomings of its current regulatory regime have convinced me of the real need to reform the oversight of this important sector of our financial system," said Rep. Paul E. Kanjorski, D-Pa., chairman of the Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises.

The Congressional Research Service report said that with the potential losses so high, financial institutions would be acting in their own "self-interest" to help the insurers "retain their AAA ratings with or without direct government intervention."

It continued: "Unless a single, very well capitalized individual or firm becomes convinced that buying out a large bond insurer made business sense, the odds of a purely private rescue seem small."

Door to the Credit Crunch Whacks Student Loans

The credit calamity is crunching another corner of the market: securities tied to student loans, according to The Wall Street Journal.

Auctions of these securities, bundled long-term student loans, have failed to generate interest by money-market investors.