Lehman, HSBC shut offices on subprime woes

The rising cost of credit took its toll on Lehman Brothers Holdings Inc., Accredited Home Lenders Holding Co. and HSBC Holdings Plc as the subprime mortgage fallout spreads through the economy.

Lehman, the biggest underwriter of US bonds backed by mortgages, became the first firm on Wall Street to shut its subprime-lending unit and said 1,200 employees will lose their jobs.

Accredited, reeling from its cancelled purchase by Lone Star Funds this month, stopped making home loans. London-based HSBC, Europe's largest bank by market value, closed a US mortgage office after failing to finance new loans.

Mortgage lenders today announced plans to fire 3,700 people as the slump that began in subprime mortgage bonds reaches beyond mortgages to companies seeking money in the corporate debt markets.

The shortfall of credit prompted the Federal Reserve last week to cut the discount rate that it charges banks to lend. The Fed may cut its overnight rate to persuade lenders to extend more credit, said John Lonski, chief economist at Moody's Investors Service.

"The subprime situation continues to deteriorate and the likelihood of a Federal Reserve rate cut is increasing,'' said Lonski, who is based in New York. The Fed may need to cut in the event that the financial markets remain dysfunctional.'

H&R Block Inc said today that its Block Financial unit drew down on bank lines and two European mortgage-securities funds had their credit ratings slashed to junk from AAA by Standard & Poor's because debt market turmoil curbed access to short-term financing.

Subprime lender Delta Financial Corp. today said it will close offices in Florida, Texas and California, cutting its workforce by 20 percent, or 300 jobs.

Quality Home Loans filed for bankruptcy, the 15th lender since December to seek protection. More than 90 have halted operations or sought a buyer.

"I don't think we are going to see the bottom for at least another six months,'' said Edward Resendez, the former Chief Executive Officer of Resmae Mortgage Corp. Resendez sold Resmae to Citadel Investment Group in March at a bankruptcy auction.

"The lenders that are struggling out there are not going to survive. As soon as their liquidity runs out they are going to go under as well.''

Accredited said in a statement today it will shut more than half of its mortgage operations and fire about 1,600 people.

Accredited shares fell 45 cents, or 6.9 percent, to $6.10 in composite trading on the New York Stock Exchange. They have fallen 78 percent this year.

H&R Block shares fell 35 cents, or 1.8 percent, to $19.44. The stock has tumbled 16 percent in 2007.

Lehman, based in New York, will shut its BNC Mortgage LLC unit and cut about 4.2 percent of its workforce of more than 28,000. The closing will reduce its earnings by $52 million, Lehman said in a statement. Lehman shares, down 25 percent this year, rose $1, or 1.7 percent, to $58.54.

HSBC plans to close its Carmel, Indiana, office by the end of the second quarter of next year, eliminating 600 jobs, spokesman Michael Trevino said.

HSBC's provisions for bad loans climbed 63 percent to almost $6.4 billion in the first half of 2007, HBSC said in July.

Kansas City, Missouri-based H&R Block said Block Financial drew down $200 million on Aug. 16 and then repaid that loan when it borrowed $850 million four days later.

"The credit markets have become increasingly constrained and unstable,'' H&R Block Chief Financial Officer William Trubeck said in a statement. ``We have decided to substitute this more stable source of funds to support our short-term needs.''

More than 20 companies have been shut out of the market for asset-backed commercial paper, or short-term debt maturing in 270 days or less, as investors balked at buying mortgage-backed debt. HBOS Plc, the U.K.'s largest mortgage lender, will repay about $35 billion of commercial paper from its Grampian Funding LLC unit.