Morgan Stanley has dismissed at least one trader who contributed to billions of dollars of losses it suffered on investments tied to subprime mortgages.

Managing director Howard "Howie" Hubler, who had been running a proprietary trading unit that saw its fortunes crumble when the debt market took a dive this summer, was fired Nov. 2. Just days later, word got out that Morgan Stanley would join other Wall Street firms that have been taking huge writedowns on mortgage-related holdings.

Morgan Stanley had set up Hubler's so-called global proprietary credit group in April 2006 to trade a range of structured products with an undisclosed amount of the bank's own money. His unit had been turning a handsome profit until the market tanked just over a year later.

More firings are a virtual certainty. In fact, the jobs of all 20-30 staffers in Hubler's unit are in jeopardy, if they aren't gone already. "You always cut off the head first," one trader said.

Morgan Stanley said Wednesday that it had lost $3.7 billion on investments related to subprime mortgages in the first two months of its fiscal fourth quarter, which began Sept. 1. A day earlier, The Wall Street Journal reported that two analysts had pegged the bank's probable writedowns at $3 billion to $6 billion for its entire fourth quarter.

Unlike its rivals, Morgan Stanley doesn't appear to be taking most of those hits because it warehoused troubled assets or retained securities as an underwriter. Rather, the losses stem mainly from proprietary activities that left it with a hefty exposure to CDOs backed by pools of subprime-mortgage bonds.

The extent to which the declines are directly linked to Hubler's team isn't clear, but it stands to reason that his group's activities played a major role. While Morgan Stanley declined to comment, speculation had already been brewing for some time that the unit would eventually have to own up to losses.

The bank, known as one of the most sophisticated proprietary traders on the street, also lost $480 million on quantitative stock trades during the third quarter, according to the Wall Street Journal.

Morgan Stanley formed Hubler's group as part of a move that split its structured-product trading desk into two. On one side is a "principal" unit tasked with boosting profits by betting Morgan Stanley's own cash - something the bank became interested in after seeing rival Goldman Sachs post big profits through proprietary trades. On the other side, a "client-facing" group deals with outside customers.

Hubler, regarded as a star trader, was allowed to hand-pick the staffers for his division, which fell within the principal unit. They included a number of well-respected proprietary traders and dealmakers.

One of them, Joseph Naggar, jumped to a buyside position at hedge fund operator GoldenTree Asset Management about two weeks ago. Insiders at Morgan Stanley say Naggar wasn't necessarily headed for the chopping block at the time, but that his move may have been motivated by fears that Hubler's unit would be dissolved.

Naggar was a right-hand man to Hubler, playing a key role in orchestrating many of the team's risky CDO trades. Word is that he started reaching out to GoldenTree months ago.