Morgan Stanley (MS) said Tuesday it is cutting about 600 jobs and slimming down its mortgage business, after a credit crisis upended the home loan industry this summer and forced other investment banks into similar moves.

Two weeks after the Wall Street investment bank missed analysts' expectations for the fiscal third quarter and took a writedown of $940 million for corporate loans stuck on its books, Morgan Stanley said it will eliminate about 1 percent of its work force.

"It is the direction everybody is going," said Sanford C. Bernstein & Co. analyst Brad Hintz. "This is Wall Street voting with their feet about how rapidly the mortgage market is coming back. They are saying it is not coming back quickly."

As part of a plan to fuse its three mortgage businesses into one subsidiary based in Irving, Texas, Morgan Stanley will close certain offices and cut 500 jobs in the U.S. and 100 in Europe.

Morgan Stanley said reshuffling these businesses will make the company more efficient and provide the opportunity to profit once the industry recovers.

The mortgage industry plunged into distress this summer as more borrowers missed payments on their home loans and investors soured on risky mortgage debt. This made it harder to sell home loans and forced dozens of lenders out of business.

The company said the mortgage industry has changed and banks have to rethink their position in the mortgage business. Morgan joins retail and investment banks, including Bear Stearns Cos. and Lehman Brothers Holdings Inc., in revamping its mortgage business.

Like other investment banks, Morgan Stanley in the past five years attempted to "vertically integrate" its mortgage operations. Whereas the bank once bought mortgage debt from banks to repackage into bonds, Morgan now issues many of its own loans.

Hintz said the shakeout in the industry this year shows the idea of integrating the platform "may not be working particularly well."

With bonds commanding lower prices than they did a year ago, the profitability of the entire structure has diminished, he said.

Morgan's three mortgage businesses include a "subprime" mortgage loan issuer and collector, a prime loan issuer, and a subsidiary that buys loans from other lenders. The subprime business issues home loans to people with checkered credit histories.

These segments will be integrated into a single business that lends money both through brokers and directly to home buyers, collects payments on home loans, and sells bonds backed by mortgages.

Shares of Morgan Stanley climbed $2.09, or 3.3 percent, to close at $66.10 Tuesday. The stock is now down only about 1.5 percent for 2007. At its trough in August, the shares were down more than 18 percent for the year.