BRKG: Lehman Brothers Shuts Down Subprime Unit, Fires 1,200 Employees

Aug. 22 (Bloomberg) -- Lehman Brothers Holdings Inc., the biggest underwriter of U.S. bonds backed by mortgages, became the first firm on Wall Street to close its subprime-lending unit and said 1,200 employees will lose their jobs.

Shuttering BNC Mortgage LLC will cut earnings by $52 million, Lehman said in a statement today. Lehman acquired Irvine, California-based BNC in 2004 and used it to expand in lending to homeowners with poor credit or heavy debt loads. The job cuts are equivalent to about 4.2 percent of Lehman's workforce of more than 28,000.

``Market conditions have necessitated a substantial reduction in resources and capacity in the subprime space,'' the New York-based firm said.

Subprime mortgages, shunned for years because of the default risk, helped fuel the U.S. housing boom this decade as securities firms led by Lehman and Bear Stearns Cos. packaged them into AAA- rated bonds. A surge in late payments on the loans has since eroded confidence in credit products and roiled global debt and stock markets as investors fled to safer assets.

Accredited Home Lenders Holding Co., a subprime specialist, announced 1,600 job cuts earlier today in an effort to outlast the credit crunch that has forced dozens of rivals out of business. HSBC Holdings Plc is eliminating 600 positions in its U.S. operations and closing a mortgage office in Indiana, and Capital One Financial Corp. is closing GreenPoint Mortgage because it can't make money anymore lending to homeowners and then selling those mortgages to investors.

3 Percent

Lehman said as recently as June that subprime mortgages and related securities provide less than 3 percent of its revenue, which was $17.6 billion last year. The firm said it will continue making home loans to borrowers with better credit through its Aurora Loan Services LLC unit.

Shares of Lehman have fallen almost 27 percent this year, the third-worst performance in the 12-member Amex Securities Broker/Dealer Index, on concern that contagion from the subprime crisis will hurt earnings. The stock fell 41 cents to $57.13 in 2:21 p.m. New York Stock Exchange composite trading today.

BNC made about $2 billion of loans in the first quarter, down 40 percent from a year earlier, according to industry newsletter National Mortgage News. The unit's 23 offices in eight states will be closed.

Lehman said in June that it would merge BNC and Aurora in within three months, eliminating 400 jobs. Aurora originated $7 billion of Alt-A loans to better-rated borrowers in the first quarter, down from $10 billion, National Mortgage News reported.

Lehman said in a regulatory filing last month that it had ``unrealized'' losses of $459 million in the quarter ended May 31 from mortgages and mortgage-backed assets. Gains in corporate bond and equity holdings, as well as derivative contracts, offset those losses, according to the filing.

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