Morgan's HELOC Woes Not Shared by Rivals

Still, Morgan's home-equity exposure should be "modest," since it got into the business very late, Hintz adds. The company declined to comment regarding its current total outstanding home equity lines to clients.

Morgan's foray into the mortgage business is linked to the firm's management shake-up in 2005. Morgan's then new-CEO John Mack had expressed at the time the firm's need to take on more risk across the company. The firm hired former Merrill Lynch executive James Gorman in August 2005 as head of its global retail brokerage business. Hintz says one of Gorman's first moves was to ramp up its commercial banking activities, including mortgage and home equity loans for brokerage clients.

The firm also bought subprime mortgage lender Saxon Capital in 2006, at the end of the housing boom.

But like other investment firms that expanded into the residential mortgage business in the earlier part of the decade, Morgan Stanley has been paring back the business this year as the housing and credit markets deteriorated. In February it said it was scaling back its residential mortgage business by slashing jobs and closing its U.K. mortgage lender. Morgan Stanley still offers residential mortgage loans to clients through Morgan Stanley Credit Corp. -- a partnership between the Institutional Securities business and Global Wealth Management arm.

Merrill Lynch, which has been clobbered by the credit crisis as a result of its large exposure to collateralized debt obligations backed by risky mortgages, also is exposed to faltering consumer credit ventures. The firm has a commercial banking subsidiary Merrill Lynch Bank USA, based in Salt Lake City and also in 2006 bought subprime lender First Franklin from National City(NCC Quote), which it announced it was winding down this spring.