NEW YORK—Lehman Brothers Holdings Inc. on Thursday said it would cease wholesale mortgage lending in the U.S. because of the continued housing slump, a move that includes 1,300 jobs cuts and a $40 million charge.
The nation’s fourth-largest investment bank had set up a wholesale lending business to purchase loans made by others and then package them into bonds. But, as the bottom dropped out of the subprime mortgage market, the business triggered steep losses for Wall Street’s biggest banks.
Lehman has eliminated about 2,500 jobs already from its mortgage business, folding most of the operations into its Aurora Loan Services unit, based in Douglas County, Colo.
“While it was necessary for us to structure our mortgage origination businesses in the U.S. to reflect the change in industry dynamics, we deeply regret the impact this action has on our people,” said Ted Janulis, global head of mortgage capital for Lehman Brothers, in a statement.
Aurora—which makes loans to customers with higher credit ratings than subprime borrowers—will still continue providing mortgage loans to consumers. However, the unit’s business directly from consumers is limited since Aurora doesn’t have retail mortgage locations.
The cuts will lead to the consolidation of operation centers in California, Florida and New Jersey.
Defaults and delinquencies on risky subprime mortgage grew at an alarming rate last year, causing losses in mortgage-backed bonds and other investments. Lehman, the largest U.S. underwriter of mortgage-backed bonds, has come out mostly unscathed by the credit crisis.
Lehman Brothers beat Wall Street expectations when it reported fourth-quarter results in December. Investment management fees and equity trading offset a $3.5 billion write-down from mortgage-related losses.
By comparison, Merrill Lynch & Co. posted a record loss for the fourth-quarter and took $15 billion in write-downs. Bear Stearns Cos. and Morgan Stanley also booked losses for the quarter.
Lehman shares fell $3.40, or 5.9 percent, to close at $54.66 Thursday.
