Royal Oasis Lender Lehman Brothers Collapses

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The fourth largest bank in the United States has collapsed and closed it doors. Stocks on Wall Street are plummeting upon hearing of the company’s death. The mortgage crisis will cause MAJOR job losses across the United States and in this collapse alone some 5,000 workers at the bank are now unemployed. The million dollar question is what investments does Bahamian companies have in the failing banks around the world?

Listen to a live broadcast on CNN today: News about the financial crisis in the United States

New York, USA: 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 third-quarter earnings by $52 million, Lehman said in a statement today. Lehman, led by Chief Executive Officer Richard Fuld, bought 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.

“They’re reducing costs at a time when there’s no demand for the mortgages such lenders are producing,” said Peter Sorrentino, who helps manage about $6.5 billion, including $20 million of Lehman shares, at Huntington Asset Management in Cincinnati. “It’s a relief for investors the announcement isn’t about some poisonous debt that went sour on their balance sheet.”

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. profited by packaging 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.

Fissures appeared in the subprime market during the fourth quarter of 2006, when delinquent payments from borrowers rose the most in four years. Prices of securities backed by their mortgages sank, ultimately forcing Bear Stearns last month to tell investors in two of its hedge funds, which bet heavily on home loans, that their investments had been wiped out.

11 Percent Drop

The collapse of the two funds inflamed investors’ concern about risky bonds and loans, causing credit markets to seize up. The crunch has punished Wall Street firms’ shares, as investors figure that slack demand for mortgage securities and debt used for leveraged buyouts will cut earnings.

The Amex Securities Broker/Dealer Index, which includes Lehman and Bear Stearns as well as Goldman Sachs Group Inc. and Morgan Stanley, the No. 1 and No. 2 securities firms, has fallen 11 percent since June. That compares with a 2.6 percent decline in the Standard & Poor’s 500 Index.

Lehman has lost 25 percent this year, the third-worst performance in the 12-member Amex index. The stock rose $1, or 1.7 percent, to $58.54 in 4:03 p.m. New York Stock Exchange composite trading today.

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.

Janulis’s Division

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.

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.

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

Theodore Janulis, a 22-year Lehman veteran, oversees mortgage lending at the firm. He took over the mortgage division last year after leading its investment management business for four years. Janulis, 48, became a member of Lehman’s executive committee in January 2004.

`Unrealized’ Losses

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 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.

In a regulatory filing last month, Lehman said 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.

Other brokerages and banks that bought U.S. mortgage lenders in the past year also face potential losses. Merrill Lynch & Co. paid $1.3 billion for First Franklin Financial Corp., and Morgan Stanley spent $706 million for Saxon Capital Inc. Deutsche Bank AG acquired MortgageIT Holdings Inc. for $429 million and Barclays Plc paid $76 million for Equifirst Corp.

Spokesmen for Merrill, Barclays and Deutsche Bank declined to comment on their firms’ plans for the mortgage-lending units. A Morgan Stanley spokesman didn’t return a phone call seeking comment.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.

  • Hey very nice blog!! Man .. Beautiful .. Amazing .. I will bookmark your blog and take the feeds also…

  • Drama King

    Thats true, WOW !! No matter where you hide it Ingraham and BEC will find it and take the last penny from you or its BLACK OUT !!

  • WOW!

    Kim, no need to hide your money or put it the bank, just send it all to BEC now cuz’ with these rates they will get it sooner or later.

  • Drama King

    Thats right. Put it in the mayonaisse jar and stick it in the freezer as the dog might get curious and some joneser might be watching. Aint nothing too safe these days.

  • Drama king, I think I better but it in the freezer, because the dog might dig it up (lol).

  • Drama King

    The mattress might be safer than these institutions….just dont let the maid find it when she cleaning.

    Perhaps the empty mayonaisse jar buried under the plum tree in the back yard is safer.

  • Joe Blow sound like you are on to something. I was thinking I need to close out all my accounts and put the money under the mattress (lol).

  • Can’t help wondering if the M.of F. saw this coming and decided to back away from the projects that were not yet started so the Bahamian people, who might have been employed, would not start spending the money they would never see. He might be smarter than some think.
    Just 6 weeks till the U.S. elections. Best to put any extra money in guaranteed investment certificates if you are in that position,at least till we see what unfolds after the election. When our neighbour sneezes we all come down with a cold. That’s the way it is.

  • The government and the financial institutions aren’t saying anything. AIG is one of the largest insurer in the world if that did close down, that would affect all of these insurance companies around the world. That is why the US government loan them money, so they could stay in operation. Colinaimperial was already doing bad before all of this.

  • Drama King

    RB75, I am sure there is no plan in the making as this government has yet to admit the country is in recession.

  • rb75

    This is historic and for the first time in financial history that such a huge collapse has happend since the great depression .
    The Government should pay close attention to this and there should be a plan of action to be taken.

  • media

    Alfred we know what we are saying when we posted this. Only Ingraham and Christie would be talking about the schools – what never ready and the PLP infighting – whilst the world’s financial giants are falling to ashes. And whilst ColinaImperial is buckling amidst the tremors.

    From the beginning of this year, we have sent an ALARMING MESSAGE to the problems at COLINAIMPERIAL the huge losses they are reporting in their financial quarter reports. We have talked about their mass firings and their endless resignations. Over 100,000 policy holders have contracts with that company which work out to millions in pension. And insurance life and health coverages.

    If this company collapses NO ONE CANNOT SAY BAHAMAS PRESS did not send the warning, whilst both the GOVERNMENT and ColinaIMPERIAL have left a deafening silence to its many clients in this country!

  • alferd

    media boss

    This wasnt why the sale couldnt be executed – It had to do with the rights of those that held fractional ownership interests and it has subsequently been sold – Why is hasnt been redeveloped is another issue – some big news soon drop in west end grand bahama and between me you and the blog – it aint good news!

  • alferd

    Hey man

    this is big news and hugely important – These dudes were the financiers for junaid yasin’s I-group project, ritz carlton’s rose island project,a hotel development on Abaco and two projects on eleuthera – one exceeding a billion dollars.

    Now mind you things were already slow but this blow can leave uncertainty for many many years to come – If your not already feeling the trickle down ….brace yourself

  • media

    Stocks tumble amid new Wall Street landscape

    By TIM PARADIS, AP Business Writer

    NEW YORK – A stunning makeover of the Wall Street landscape sent stocks falling precipitously Monday, with the Dow Jones industrials sliding 500 points in their worst point drop since the September 2001 terrorist attacks. Investors reacted badly to a shakeup of the financial industry that took out two storied names: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.

    Stocks also posted big losses in markets across much of the globe as investors absorbed Lehman’s bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. While those companies’ situations had reached some resolution, the market remained anxious about American International Group Inc., which is seeking emergency funding to shore up its balance sheet. A faltering of the world’s largest insurance company likely would have financial implications far beyond that of Lehman, the largest U.S. bankruptcy.

    The swift developments that took place Sunday are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt. For the first part of Monday’s trading, the market was falling, but in a largely orderly fashion as investors seemed to draw some relief from the resolution of Lehman’s problems.

    But as the session wore on, and there was no word about AIG, the market’s suffered another bout of fear that the ongoing credit crisis will continue to devastate the financial sector, and selling accelerated in the final hour.

    Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.

    AIG’s troubles a week after its stock dropped 45 percent are worrisome for some investors because of the company’s enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell $6.93, or 57 percent, to $5.21 Monday as investors worried that it would be the subject of downgrades from credit ratings agencies.

    According to preliminary calculations, the Dow fell 504.48, or 4.42 percent, to 10,917.51, moving below the 11,000 mark for the first time since mid-July. It was the worst point drop for the Dow since it lost 684.81 on Sept. 17, 2001, the first day of trading after the terror attacks. It was also the sixth-largest point drop in the Dow, just behind the 508.00 it suffered in the October 1987 crash.

    Broader stock indicators also fell. The Standard & Poor’s 500 index declined 58.74, or 4.69 percent, to 1,192.96, and the Nasdaq composite index fell 81.36, or 3.60 percent, to 2,179.91.

    The S&P 500 broke through the 1,200.44 trading low seen in mid-July, a key level traders watch. Much of the trading day until about the last hour had been orderly because the market had tested another key level early in the session and managed to stay above it. But the eventual drift lower prompted some investors to hit the “sell” button.

  • Drama King

    Thats a crying shame. I would love to know what the outcome of all of this will be.

  • media

    And NOW we also know why the Royal Oasis cannot be sold. Also we now know why the Developments on the island cannot get off the ground. The Banking systems are collapsing.

  • Drama King

    I am quite sure the Wutless Media dont know this. They REFUSE to investigate anything so they KNOW NOTHING.

  • media

    Lehman Brothers was on of the lenders who were in the discussions with the Christie government and the owners of Royal Oasis here on Grand Bahama. We note this for members of the WUTLESS Media who possibly forgot.

    Bahamas Press / Editor

  • media

    ColinaImperial has also recorded losses for the first quarter and is loosing clients by the day. Bahamas Press wonders what is happening here in the Bahamas, much of which is unknown to us. WHY was the executive team fired at ColinaImperial, and why are resignations of senior management occurring by the day at ColinaImperial?

    Bahamas Press/Editor