NEW YORK (Reuters) - Morgan Stanley (nyse: MS - news - people ) plans to cut 10 percent of staff in its institutional securities unit and 9 percent in asset management, it said Wednesday, as it copes with a deteriorating economy, disrupted capital markets and falling asset values.

The cuts are in addition to roughly 4,800 jobs eliminated since the middle of 2007 by what was once Wall Street's second-largest investment bank.

It was not immediately clear how many employees will be affected by the latest cuts, or over what time period. A spokeswoman declined to comment. Morgan Stanley employed 46,383 people as of Aug. 31, according to its website.

The change requires it to lower leverage, potentially cutting profitability. The bank has slashed its asset base to below $800 billion from $987 billion at the end of August.

"We're in a period of tremendous dislocation," Co-President James Gorman said at a Merrill Lynch (nyse: MER - news - people ) financial services conference. "We're very mindful of the environment that we live in at the moment, and we will continue to rationalize headcount and costs accordingly."

Goldman Sachs Group Inc (nyse: GS - news - people ), Morgan Stanley's main rival, also became a bank holding company in September. It set plans last month set plans to reduce 10 percent of its staff, or nearly 3,300 jobs.

In late morning trading, Morgan Stanley shares fell 80 cents, or 5.7 percent, to $13.28 on the New York Stock Exchange. They began the year at $53.11.

NO QUICK FIXES

Gorman said the bank holding company structure will allow Morgan Stanley to tap a wider array of funding sources.

He said the company plans to bulk up in retail banking, including through "targeted" acquisitions, and preserve or expand operations in capital raising, cash trading, commodities, corporate credit, equity derivatives, foreign exchange, mergers and acquisitions and rates.

On the other hand, he said Morgan Stanley plans to "reshape" operations in prime brokerage, proprietary trading, principal investments and commercial real estate origination,

In October, Morgan Stanley raised $9 billion from Japan's Mitsubishi UFJ Financial Group Inc, and received $10 billion from the U.S. government's bank bailout plan.

Chief Financial Officer Colm Kelleher said the infusions leaves Morgan Stanley "well-capitalized, with excess capital."

Yet he said the company still faces "incredibly dislocated markets," including "gridlock" in efforts to sell or dispose of troubled assets. "I'm not sure who is buying it," he said.

He also said Morgan Stanley aims to fund half its assets with equity, long-term debt and deposits, up from 26 percent at the end of August.

Many other companies are also seeking more stable funding, and credit card issuer American Express Co (nyse: AXP - news - people ) this week also became a bank holding company.

"There are no quick fixes," Kelleher said. "There is no magic bullet that will suddenly solve the deposit question for institutions that are moving over from wholesale funding." (Additional reporting by Juan Lagorio; editing by Jeffrey Benkoe)

Electronics retailer Best Buy Co. says it is sharply cutting its fiscal 2009 earnings outlook below analyst estimates amid what the company called the toughest retail environment it has ever seen.

Richfield, Minn.-based Best Buy (nyse: BBY - news - people ) expects earnings per share between $2.30 and $2.90 for the fiscal year ending in February, down from a prior estimate between $3.25 and $3.40 per share.

The retailer forecast revenue between $43.7 billion and $45.4 billion, as well as 1 percent decline in same-store sales, or sales at stores open at least 14 months.

Analysts expect earnings of $3.02 per share and sales of $46.23 billion for fiscal 2009, according to a Thomson Reuters survey.

Best Buy's same-store sales dropped 7.6 percent in October. Same-store sales are a closely watched performance indicator because they measures sales at existing locations rather than newly opened ones.

Chief Executive Brad Anderson said "seismic" changes in consumer behavior have created "the most difficult climate" ever seen by the company.

People line up at job fair in Denver. (Getty Images)

Job cuts: What sectors are most at risk?

NEW YORK (CNNMoney.com) -- As the impact of the economic crisis takes hold, employees from Wall Street to Main Street are feeling nervous about their jobs, and with good reason.

As of September, 760,000 jobs have already been lost this year, according to data from the Bureau of Labor Statistics.

And a quarter of U.S. employers expect to make layoffs in the next 12 months, according to a recent report by consulting firm Watson Wyatt.

But which industries will suffer the most? Experts say certain sectors are more vulnerable to layoffs than others.

Housing: Jobs in the housing sector were the first to go when the mortgage meltdown took hold. But with the industry outlook at an all-time low, even more layoffs could follow.

Beyond mortgage lenders and homebuilders, jobs in commercial real-estate and at real-estate agencies will be the next to go, according to Dean Baker, director of the Center for Economic and Policy Research in Washington, D.C.

With the worst September for new home sales since 1981, "some of the big [real-estate] chains will do some consolidation," Baker said, "clearly you need fewer offices," Baker said.

Finance: Few in the financial sector are feeling secure about their positions. The latest employment figures from the Department of Labor show financial firms have eliminated an estimated 110,000 jobs over the past year through September, and experts say there will be even more losses in the months ahead.

As financial firms reorganize and consolidate, there are going to be a lot more layoffs, Baker said.

"Financial services firms have cut tremendously and I don't think that's over," echoed Lee Pinkowitz, associate professor at Georgetown University McDonough School of Business.

Retail: Before the credit crunch, retailers were already struggling with soft sales as high gas prices and falling home equity forced consumers to curtail non-essential purchases. Now retail sales are dismal heading into the holiday season. "This could be the weakest holiday hiring season since 2001," said John Challenger, chief executive of global outplacement firm Challenger, Gray & Christmas, and that's not good for those employed in the retail industry.

"I doubt we'll see the pick up in seasonal hiring that we'd normally see," Pinkowitz said.

But while department stores and high-end boutiques may be particularly hard hit, discount retailers, like Wal-Mart (WMT, Fortune 500) could fare well in the current climate, Challenger said. Wal-Mart is also the nation's largest private-sector employer, and could be a safe haven for those who work there.

Publishing: As consumers cut back, advertisers follow, and that means tough times for print publications, including newspapers and magazines, experts say.

According to Bureau of Labor Statistics data, employment in the publishing industry has been contracting since the beginning of last year.

But the "grand decline" of jobs in the media industry, which also includes broadcast and digital media, began with the dot-com bust in 2001, noted Heidi Shierholz an economist at the Economic Policy Institute, a research group based in Washington. Now a loss of jobs in traditional publishing is being exacerbated, in part, by the move away from print toward digital media.

"Every time you have a recession it pushes companies that have been holding on by their fingernails out of business," Challenger said. "It clears away an old generation of companies and I think we'll see that with print."

Autos: While sales at the Big Three automakers have fallen 20% this year and are likely to tumble further, trouble in the auto sector is not confined to manufacturing. All told, about 2 million Americans work in the industry.

While declining sales will likely lead to more job losses, those in "the tentacles of the auto industry" could be particularly hard hit in the coming months, Pinkowitz said, which includes those jobs at dealerships and suppliers.

Travel: Airlines have already announced layoffs across the board, but as consumers and businesses continue to scale back discretionary spending on travel, the implications go far beyond flying.

"All the industries under the umbrella of travel are going to be at risk" Challenger said, including rental cars, hotels and even restaurants.

If people are cutting back, travel and leisure activities are the easiest things to do without, explained Baker. Big restaurant chains will close locations, he said, which means eliminating many wait staff and service jobs, while some smaller restaurants will be forced out of business entirely.

But despite the mostly doom-and-gloom predictions, some say there are some bright spots ahead for American workers.

"Even if you're in an industry where there has been some job downturns, there still can be some opportunities," said Kimberly Bishop, vice chairman of Chicago-based executive search firm Slayton Search Partners.

Bishop suggests focusing on those skills and experiences that can translate beyond the industry in which you work. There are certain roles that every organization needs, she said, and you may be able to fulfill that role in another industry that has more promise. 

10 Ways to Cut Business Costs

John Tozzi

Small changes to reduce expenses and improve profitability can help prevent more painful cuts later on. Here are 10 ways your company can trim costs without touching your core business, with links to in-depth articles on each technique.

Reduce Energy Use

Switch to compact fluorescent lighting to save electricity. Cut your heating bill with better insulation and windows. On the road, slow down and use GPS systems to boost mileage and reduce fuel costs.

Telecommute

Send some or all of your staff to work from home to save on the cost of office space. You'll also save workers money and time commuting.

Pay Invoices Early

Take advantage of discounts suppliers offer for paying invoices early. Often trade terms offer 2% off for payment within 10 days.

Curb Travel Expenses

Cut business trips that don't generate revenue, such as conferences, and opt for less expensive flights and hotels on essential trips.

Find Cheaper Space

Get bargains on new office space or renegotiate better terms on your current lease now that real estate markets in many areas are tilting in tenants' favor.

Buy Secondhand

Find office equipment and furniture at a fraction of the retail cost as other businesses liquidate or unload their assets.

Go the Barter Route

Trade goods and services with other businesses to reduce cash expenditures.

Manage Your Inventory

Keep only supplies you need in stock to reduce overhead

Cut Your Tax Bill

Take advantage of tax deductions for new equipment purchases, hybrid cars, and other expenditures.

Audit Fixed Assets

Clear your books of assets you no longer have to reduce your insurance bills and taxes.

Not surprisingly, Yahoo just reported third-quarter earnings that were weak but not as awful as some might have expected. However, the company said layoffs of at least 10% of the staff of 14,300 will begin in the fourth quarter—about what reports had anticipated.

They will be part, but not all, of a sweeping cost-cutting effort that is intended to reduce its annual costs of $3.9 billion by about $400 million before the end of this year. “Now we are conducting a deep review of our cost structure to identify more opportunities to enhance efficiency and build a stronger and more profitable Yahoo!,” president Sue Decker said in a statement.

Net profit fell 64% to $54.3 million, or 4 cents a share, from $151.3 million, or 11 cents a share, a year ago. Excluding special items such as stock option expenses, profit fell from 11 cents a year ago to 9 cents a share in the third quarter, precisely what analysts were expecting. However, net revenues, after payments to partners for traffic, rose just 3%, to $1.33 billion, slightly short of the $1.37 billion analysts had forecast.

Yahoo lowered its 2008 revenue outlook to between $7.18 billion and $7.38 billion, from its previous forecast of $7.35 billion to $7.85 billion.

Yahoo Chief Financial Office Blake Jorgensen cited “an increasingly challenging economic climate and softening advertising demand” for Yahoo’s results coming in at the low end of the range it had forecast. Although he said in a statement that Yahoo was “disappointed” in the results, he said cost-cutting during the year so far had helped cushion the economy’s impact on operating cash flow. Free cash flow, after capital expenses, fell 31%, to $151 million, from a year ago.

You can view the results and then listen to the conference call online here. After the jump is my pre-earnings analysis of the many issues facing Yahoo as it reports results and provides an outlook on coming quarters:

UPDATE: Investors so far seem relatively pleased, with the stock up 5% after-hours.

And the call begins with Jerry Yang. He says Yahoo saw “mixed trends,” with search and performance-oriented display ads showing strong growth but “demand for branded display advertising weakened.” So the company is reducing full-year revenue outlook but keeping its operating cash flow outlook thanks to cost cuts, which will be not only layoffs but cuts in real estate, standardization of its technology platform, and other methods.

He says he remains optimistic about Yahoo’s future because the downturn likely will drive advertisers to reliable venues. The latter, at least, is what I’ve been hearing from advertisers and agencies, but the question will be to what extent Yahoo’s entire ad offering will be the most compelling.

“This is in many ways an unprecedented operating environment,” Yang says. “We believe the online ad market will emerge strong, with Yahoo well-positioned to take share.”

Now President Sue Decker comes on to talk about fairly familiar Yahoo products and features, though one detail—page views up 17%—is a positive sign. But she says overall monetization of pages was lower than expected, especially commitments to branded campaigns. Despite strength in search revenues from its own sites, up 17%, display ad revenues on its own sites was up only 3%, much less than double-digit gains in previous quarters.

Decker’s now talking up APT, its new display-ad platform.

Now it’s on to Jorgensen: Two main themes in quarter, already apparent in previous comments: worsening economic environment coupled with greater cost cuts. “We are cautious about the advertising market in Q4. But we feel we are well-positioned to weather the downturn.” Mentions the Asian properties are valued at $7 billion or so, or more than $5 a share—a clear attempt to point out that Yahoo’s stock is undervalued in his view.

Now, the analysts’ questions:

* How is Yahoo going to improve monetization on its own sites? Decker says mainly the display ad platform, APT.

* Any lift in ad rates thanks to APT? Decker says no data yet.

* Where were the cost cuts in the quarter? Jorgensen: All year, actually. Slower hiring, but mainly hiring in lower-cost areas like India, Eastern Europe, and Southeast Asia.

* Any deadline on the Google-Yahoo deal? Yang can’t say, though I’ve gathered from people close to this that the Oct. 22 deadline mentioned widely isn’t actually a deadline. Talking with the Justice Department and others.

* How confident are you in the revenue forecast? Decker: watching weakness in Asia, but she mentions some “stability” in the U.S. despite some ad cancellations in travel and other areas.

* Could there be more consolidation among companies online, and what would Yahoo’s role be? Yang: Says there are opportunities, especially since ad spending isn’t increasing much, so it’s hard to grow that way. But he offers no specifics.

* How do you see your growth rate vs. Google? Yang: “There continues to be a flight to quality with regard to consumer behavior and advertiser behavior.” Decker more specifically acknowledges the obvious, that Google’s growth rate is faster than Yahoo’s, and talks about various ways Yahoo hopes to improve its search offerings for consumers and its search ad system for advertisers.

* Was there a sharp downturn in September? Decker: “The trends weakened in the latter part of August.” First Europe, then Asia. Also weakened in the U.S. but not as much as the rest of the world.

* What’s the ‘09 outlook? Yang, with a hint of a rueful laugh: “I don’t think we have any visibility into ‘09.”

* What’s the impact of acquisitions on revenue? Jorgensen says acquisitions contributed 1% to GAAP revenue.

* In what departments or functions is Yahoo making cuts? Yang doesn’t provide specifics, just the usual things like real estate.

* How will Yahoo unlock shareholder value? Yang says one way is cutting costs. Conservative on share buybacks, though, so that looks unlikely.

* How much of the weak 3% display-ad growth is due to the economy and how much to losing share to ad networks and niche sites? Decker: Can’t really say yet, but says Yahoo is outgrowing the ad networks.

* How sensitive will Yahoo be to diluting shareholders if and when it does acquisitions? Jorgensen: “We’ll clearly be very sensitive to dilution.”

* Last question: Have you considered hedging out exchange risks in various international markets? Jorgensen: Yes, but doesn’t sound like Yahoo plans to do much on that.

And that’s it for the call. The stock’s now up about 7% in extended trading, so if anything, the details from the call reassured investors—at least to the mild extent that they can be reassured about a company facing this many challenges.

Analysts are expecting a profit of 9 cents a share on net revenues, after payments to partners for traffic, of $1.37 billion. But some analysts, who have already cut their estimates for the fourth quarter and next year, think Yahoo could miss those numbers. Yahoo’s stock closed down about 6%, to just over $12 a share, in trading Oct. 21 before the earnings announcement.

Investors also will be looking to see if Yahoo announces layoffs, as recent reports have indicated it might, and how many. Several reports indicated it could cut about 1,500 people out of its staff of 14,300, though it wasn’t clear when and where the cuts would be made inside the company. Yahoo has hired consultant Bain & Co. to help suggest various cost-cutting measures, which could go beyond layoffs.

Like Google’s earnings last week, Yahoo’s will be closely watched for signs of how badly online advertising will be hit by the deepening economic downturn. Google, however, which reported better-than-expected results, was not a good industry bellwether because of its dominance in relatively well-performing search ads.

By contrast, Yahoo is more representative of the broader online advertising market, in particular display ads that are likely to bear the brunt of cutbacks by large brand advertisers. In particular, Yahoo’s heavy reliance on financial services and automobile advertising could hurt it as the effects of the credit crunch worsen. “Their business has been hurting,” says John Aiken of Majestic Research. “The real miss looks like it’s coming on the branded display ads.”

And those cutbacks were already starting even before the market meltdown began about a month ago. According to recently released figures from the Interactive Advertising Bureau and PricewaterhouseCoopers, display advertising declined from the fourth quarter of 2007 to the first quarter of 2008, and also fell again slightly from the first to the second quarter. That hasn’t happened since 2002. “If clients have to cut, digital budgets are not going to escape scrutiny,” says Clark Kokich, CEO of Razorfish, an online ad agency owned by Microsoft. “You’re going to see a softness we haven’t seen for the last few years.”

At the same time, Yahoo faces many other challenges. Since Microsoft walked away from offers to buy the entire company and then only its search business, Yahoo’s stock has fallen—especially after the market meltdown. It’s now trading a little under $13 a share, a small fraction of Microsoft’s original $31-a-share offer. And while Microsoft CEO Steve Ballmer recently appeared to hint that the company is still interested in Yahoo, Microsoft officially quashed that notion.

Yahoo has been discussing a combination with AOL, which parent Time Warner has been shopping for months. The agreement is believed to involve Yahoo taking over AOL for something under $10 billion and Time Warner taking a minority stake in Yahoo. According to people familiar with the companies, Yahoo, bolstered on the media front with AOL, might then be willing to do a search deal with Microsoft from a position of more strength.

However, it’s not clear that such a combination would help Yahoo regain ground lost to fast-growing social networking sites such as Facebook and News Corp.’s MySpace, let alone Google. Despite a monthly audience of 500 million people worldwide, Yahoo has been unable to break into social networking, a key potential growth area.

That’s not all the drama surrounding Yahoo. Its proposed deal to run Google search ads on some of its pages is under intense scrutiny by the Justice Department, which is expected to make a decision soon. Although few people expect the deal to be opposed outright, many legal observers think limits could be placed that would make the deal—which Yahoo said could contribute $250 million to $450 million in cash flow annually—less lucrative.

Not least, Yahoo’s plight also has been sending a steady stream of talent out the door, from engineers to executives. And the layoffs being considered now no doubt would hurt morale even further. That’s especially likely if Yahoo doesn’t announce specific jobs to be cut until later in the year.

The only upside for Yahoo is that its difficulties could be priced into the stock already, leaving relatively little downside. However, few people expected Yahoo’s stock to fall this far. So for now, all bets are off.