Add Lehman Brothers Holdings to the growing list of subprime victims. The biggest underwriter of U.S. bonds backed by mortgages said it will close down its BNC Mortgage LLC unit in a move that will result in the firing of 1,200 employees, or about 4.2% of the company’s work force. Associated costs will total $52M, and the company expects a related after-tax charge of about $25M. Lehman will continue to offer home loans to more credit-worthy borrowers through its Aurora Loan Services unit. According to Inside B&C lending, BNC was a top-20 subprime mortgage lender in 2006, originating more than $14B of home loans, though Lehman has indicated that subprime mortgages and related securities provide less than 3% of its revenue. One asset manager said it was a “relief” that the announcement wasn’t about some bad debt that went sour on the company’s balance sheet. Lehman is the first Wall Street firm to shutter its subprime-lending unit, though last month, Bear Stearns closed down two of its hedge funds that were heavily invested in home loans (full summary). Lehman wasn’t alone in feeling the effects of the credit crunch Wednesday: Accredited Home Lenders Holding Co., a subprime specialist, announced 1,600 job cuts in a bid to outlast the crisis (full summary); HSBC Holdings Plc is eliminating 600 U.S. jobs and closing a mortgage office in Indiana; and Capital One Financial is closing down GreenPoint Mortgage (full summary).
Sources: Bloomberg, MarketWatch
Commentary: Brokerage Stocks: Good Money After Bad? • Lehman Denies Subprime Exposure
Stocks/ETFs to watch: LEH, HBC, LEND, COF. Competitors: MS, BSC, MER, GS. ETFs: KBE, KCE
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