Merrill to shutter subprime unit
Merrill Lynch & Co. Inc. will close its First Franklin subprime-mortgage lending unit, in a move that will eliminated 650 jobs.
Merrill Lynch & Co. Inc. will close its First Franklin Financial Corp. subprime-mortgage lending unit, in a move that will eliminated 650 jobs.
The New York-based financial services company said it is leaving the business because of the deterioration of the subprime-lending market.
Additionally, Merrill said it will explore selling its Pittsburgh-based Home Loan Services unit, which handles billing and collections.
The company estimated that it will incur $60 million in charges related to San Jose, Calif.-based First Franklin, mostly for severance payments and costs related to closing its offices.
Half of those charges will be recorded in the first quarter.
“Since July, we have reduced staffing at First Franklin by nearly 70%, but after evaluating a number of strategies, we believe it is appropriate to discontinue mortgage origination,” said David Sobotka, head of Fixed Income, Currencies & Commodities at Merrill Lynch.
Merrill purchased First Franklin and most of its loan portfolio from National City Corp. of Cleveland for $1.3 billion in December 2006.
The close of First Franklin comes after the company posted a $9.83 billion fourth-quarter loss, reflecting a $16.7 billion write-down due to the ongoing fallout from the subprime-mortgage debacle (InvestmentNews, Jan. 17) .
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