Tuesday, August 21st, 2007
Countrywide and SunTrust to Start Layoffs
By Jason Simpkins
Staff Writer
Three more major U.S. mortgage lenders announced major job reductions yesterday, as the credit crisis continues to widen and American financial-services sector employees continue to pay the price for their parent companies’ strategic missteps.
Countrywide Financial Corp. (NYSE: CFC), the biggest mortgage lender in the nation has started laying off employees in an effort to cut costs resulting from the credit crunch, according to Wall Street Journal report published yesterday (Monday).
SunTrust Banks Inc. (NYSE: STI), the seventh-largest U.S. bank, has said it expects to eliminate about 2,400 jobs by the end of next year as part of a plan to save $530 million annually by 2009.
And Capital One Financial Corp. (NYSE: COF) said it would shutter its wheezing wholesale mortgage-banking business immediately, eradicating another 1,900 jobs. Capital One said it would close its GreenPoint unit. That ailing division made two kinds of loans: The so-called “Alt-A” loans to prospective homebuyers who couldn’t fully account for their income or assets, and the “Jumbo Loans,” which are those for more than $417,000, which placed them above the limit of loans that government-sponsored enterprises (GSEs) such as Fannie Mae (NYSE: FNM) could purchase and back.
Capital One said it would close GreenPoint’s 31 locations and eliminate the 1,900 jobs immediately.
Follows the Pattern
Job cuts like these are now endemic to the financial-services sector as companies shut down struggling units, reapportion employees – or just exit Stage Right. That’s what American Home Mortgage Investment Corp. (NYSE: AHM) opted to do earlier this month when it announced it was closing its doors, at the time heightening fears that we’ve only seen the start of the U.S. credit market shakeout.
On that point, American Home was correct: The credit-market fallout has infected the global financial markets, afflicting wayward banks in France and Germany and forcing central banks throughout the world to intervene. The U.S. Federal Reserve even pulled on its monetary policy levers last week by announcing a reduction in the discount rate – although it did not resort to the Federal Funds rate reduction that many investors were hoping for.
It’s highly likely that Fed policymakers will be making that move before much more time elapses – especially if such economically damaging developments as major job cuts continue. At American Home Mortgage, for instance, almost 6,250 employees lost their jobs immediately when the announcement was made, leaving about 700 people to collect unsettled bills for the Melville, N.Y.-based lender. American Home Mortgage has filed for bankruptcy protection, and now finds itself in ugly court scuffles almost daily.
Countrywide, which has a work force of about 61,000, would give no details about the job cuts at its Full Spectrum Lending unit, the group that handles its sub-prime loan business. The Los Angeles Times, citing a “person close to the company” as a source, said Countrywide was slashing 500 workers in Chandler, Ariz., where it runs a major operations center, and another 50 mortgage underwriters in the San Fernando Valley.
In terms of the 2,400 employees that it’s shedding, SunTrust spokesman Barry Koling said about 1,600 jobs are being eliminated this year, including at least 600 through attrition. Some of the 800 job cuts next year will also be through attrition. The job cuts are equal to about 7% of SunTrust’s work force as of the end of last year.
Bear Stearns Bearing Up
Layoffs hit Wall Street last week as Bear Stearns Cos. (NYSE: BSC) announced the release of some 240 members of its work force, including former co-president Warren Spector.
In an interesting side note, however, Bear Stearns took pains to emphasize that it was continuing with plans to expand in Europe, according to a report by eFinancial News.
According to that report, Bear Stearns Chief Financial Officer Sam Molinaro said the company will be hiring and expanding in its European market, despite its recent travails.
“Our commitment and the success we’ve had in Europe is key to our growth,” Molinaro said in the eFinancial News interview. “We [too] often get painted with the brush that we’re just a mortgage shop. The business is more diversified than people give us credit for.”
Molinaro said Bear Stearns is pursuing its growth plan, which includes a nascent push into the energy-trading market. Bear Stearns in June hired the former head of commodities trading from Calyon to run its energy-trading unit in Europe, and also bought the energy-trading assets of Williams Cos. (NYSE: WMB).
In an even more interesting revelation, Bear Stearns said that it is also further developing its credit business in order to counterbalance its mortgage exposure. And though the firm cut an estimated 2% of its Encore Credit work force just last week – most of them back-office or support jobs in the U.S. market – the company sees no reason to dump the mortgage business. Said Molinaro to eFinancial News: “The mortgage business in the U.S. is not going away. It will change, it will evolve, but access to mortgages is key to the U.S. economy and the role it plays is critical.”
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