Business Foreclosure editorial note :
Lehman Closes Subprime Subsidiary mortgage
unit BNC Mortgage, affecting the jobs of 1,200 employees in 23 cities and
resulting in a $25 million charge.
NEW YORK (Reuters) - Lehman Brothers Holdings on Wednesday said it is shutting down subprime mortgage unit BNC Mortgage Corp., affecting the jobs of 1,200 employees in 23 cities and resulting in a $25 million charge.
Lehman Brothers, a U.S. investment bank with an extensive mortgage business, said credit market conditions prompted it to slash its subprime resources and capacity. Lehman will continue to originate mortgages in the United States through its Aurora Loan Services LLC platform.
The bank said it will record $25 million in after-tax charges for severance, real estate and technology costs and write down goodwill associated with the unit, or $27 million.
NEW YORK- Associated Press 08.22.07 found at www.forbes.com
The Wall Street brokerage said it is shuttering its BNC Mortgage LLC subsidiary, which issues home loans to people who cannot document their income or have shaky credit histories.
Lehman will lay off 1,200 workers at 23 offices.
Closing this business will cost $25 million in severance pay and real estate and technology costs. Lehman Brothers (nyse: LEH ) will also record a $27 million accounting charge for writing down goodwill, or the value of the Irvine, Calif.-based business that Lehman carried on its books above the worth of the physical assets.
Lehman Brothers will continue to issue home loans through its Aurora Loan Services LLC unit.
Mortgage lenders around the nation, especially subprime lenders, have been closing down in the past month as deteriorating credit quality has drained the cash available to the industry.
Shares of Lehman Brothers rose 18 cents to $57.72.
Copyright 2007 Associated Press
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Wed, Aug 15 2007 8:20 pm found at finance google group
Consider the following data points:
Lehman market cap is 28.40B, balance sheet shows 451B long term
investments, 280B short/current-long term debt, 124B long term debt,
80B payable and current liabilities, 28B receivable, 12B cash, 18B
equity, 15B net tangible assets. What is their leverage based on
this? Damn good question. I would say 451/(451 - (280 + 124 + 80 -
28 - 12)) = 451/7 = 64:1. Another way to calculate is as 451/15 =
30:1. Whatever the exact number, it is very high.
44% of Lehman's portfolio is in mortgage-backed securities (source:
Countrywide said that 20.15% of their subprime and 3.70% of prime
loans are delinquent, or an average of 4.98%, a big increase from last
quarter (source: http://www.reuters.com/article/marketsNews/idUKN0927223520070810?rpc=44).
What happens to Lehman if their mortgage-backed portfolio drops by
5%? Let's see... 5% * 44% * 451B = 9.9B loss. That's a loss of half
their equity or a third of their market cap, basically. What if the
drop is 10%? You get the picture.
But wait: actually, things may be much worse than that. When CDOs are
created, someone has to hold the lower (non-AAA, "toxic") tranches.
Everyone who was in on the game was certainly scrambling to dump those
on pension funds and the like, but given the sheer volume of new
mortgages and CDOs created until recently and the abruptness with
which the market seized up, they are now probably holding a
considerable amount of those on their books. Those tranches are the
ones that take any hit from defaults first - that's why the rest can
be "AAA" (yeah right). That of course also means that the lower
tranches are also completely wiped out by even a 5% loss. Another way
to think of it is that they are leveraged at a 20:1 or so to any
downside in the mortgage market. Now, what do you think happens to a
company which is holding lower tranches of CDOs as a sizeable portion
of their 451B, 30:1 leveraged portfolio? Which is now leveraged
essentially at a 30:1 *times* a 20:1 to any potential downside?
Yes, exactly: it starts with a B and and ends with a Y.
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