Feb. 13 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm by market value, will cut as many as 40 jobs at its securitization business in Japan, two people with knowledge of the matter said.

Morgan Stanley Japan Securities Co. will trim staff including positions in its real estate financing unit after demand for such services dwindled, the people said, declining to be identified because the decision hasn't been made public.

The company joins Wall Street rivals Citigroup Inc. and Merrill Lynch & Co. in reducing headcount in Japan, where the stock market has lost 15 percent of its value in the past four months. Morgan Stanley employs about 1,600 people in Tokyo.

``A lot more job cuts are bound to come'' at U.S. and European financial companies in Japan, said Nobuo Sayama, a professor at Hitotsubashi University in Tokyo and managing partner at GCA Holding Corp., a Japanese merger adviser.

Morgan Stanley declined to comment on job cuts, said Mika Watanabe, a Tokyo-based executive director in charge of public relations.

``The company is engaged in an ongoing process of assessing its personnel needs,'' Watanabe said by phone.

The real estate financing unit originates loans backed by cash flows from properties, the people familiar said.

Property Investments

Even as it trims the securitization unit, Morgan Stanley plans to expand the division that invests in real estate in Japan, the people said. The firm has invested more than 2 trillion yen ($18.7 billion) in properties in the country so far, including last year's purchase of 13 hotels from All Nippon Airways Co. for 281.3 billion yen.

Merrill Lynch closed its Japan property financing unit last week, cutting 11 jobs, two people with knowledge of the matter said yesterday. The move was triggered by a drop in demand for the unit's services, the people said.

Citigroup will eliminate 10 percent of positions at its Japan investment bank as part of global cutbacks following a record fourth-quarter loss, two people with direct knowledge of the plan said Feb. 7.

Nikko Citigroup Ltd. will fire as many as 170 of its 1,700 employees, said two Citigroup officials, who declined to be identified before an official announcement. New York-based Citigroup employs about 16,000 people in Japan, where it also operates a bank as well as consumer finance, asset management and principal investment units.

``We're always looking for ways to make our organization more efficient and effective,'' Masafumi Yoshino, a Nikko Citigroup managing director, said in an interview in Tokyo. He declined to comment on the job cuts, as did Atsuko Yoshitsugu, a Tokyo-based spokeswoman at Citigroup.

Citigroup reduced its dividend by 41 percent and said it will cut about 4,200 jobs and curb year-end executive bonuses after posting $18.1 billion in writedowns on subprime mortgages and bonds last month.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

Last Updated: February 13, 2008 04:38 EST