Wall Street Firms Bested by Credit Market Woes

The problems in the housing and credit markets are leading to more layoffs on Wall Street. Investment bank Bear Stearns says it will trim 310 jobs from its mortgage group. Merrill Lynch fired two senior executives.

DEBORAH AMOS, host:

And now to Wall Street, where there is more fallout from the high-risk housing loans; now jobs are on the line.

Yesterday, the investment bank Bear Stearns said it was cutting 310 jobs in its mortgage group, and Merrill Lynch fired two senior executives.

NPR's Wendy Kaufman reports.

WENDY KAUFMAN: So far this year, more jobs have been lost in the financial services industry than in any other. Pink slips have gone out to about 130,000 workers; more than half of them were employed by subprime or mortgage lending institutions. To put those numbers into perspective, the industry with the second largest number of layoffs is the auto industry, with about 46,000 job cuts. Yesterday's layoffs at Bear Stearns came just a day after Morgan Stanley said it would cut about 500 U.S. jobs.

John Challenger, the CEO of Challenger, Gray and Christmas, a global outplacement firm, says the job cuts on Wall Street won't end anytime soon.

Mr. JOHN CHALLENGER (CEO, Challenger, Gray and Christmas, Inc.): Just the numbers coming up - the big losses that have been reported by the major investment banks - portend further job cuttings as the year wears on.

KAUFMAN: Meanwhile, Countrywide, a major player in the subprime market, and one that recently slashed 12,000 jobs, has launched a PR campaign. Countrywide reportedly plans to give out green wristbands for employees willing to sign a pledge to, quote, "protect our house." And it's hired a public relations/crisis management firm.

Wendy Kaufman, NPR News.

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Citigroup, UBS to Post Sharp Losses for Bad Loans

A building of the UBS bank in Zurich, Switzerland. i

A building of the UBS bank in Zurich, Switzerland. Swiss bank UBS, which already replaced its top executive and closed down a hedge fund unit this year, announced it will write down the value of some assets because of losses linked to the cascading U.S. subprime mortgage crisis. Steffen Schmidt/AP Photo/Keystone hide caption

itoggle caption Steffen Schmidt/AP Photo/Keystone
A building of the UBS bank in Zurich, Switzerland.

A building of the UBS bank in Zurich, Switzerland. Swiss bank UBS, which already replaced its top executive and closed down a hedge fund unit this year, announced it will write down the value of some assets because of losses linked to the cascading U.S. subprime mortgage crisis.

Steffen Schmidt/AP Photo/Keystone

Two large banks heavily invested in mortgages and the corporate bond market reported Monday that they expect to post sharp declines when they report quarterly results.

Citigroup, Inc., the nation's largest bank, projects its third-quarter profit will drop 60 percent after taking losses of more than $3 billion as a result of writing down securities backed by underperforming mortgages and loans tied to corporate buyouts.

The bank also said its profits would be dampened after boosting loan loss reserves by about $2 billion.

Citigroup said third-quarter revenue will be about the same as in 2006. But it will write down about $1.4 billion of its $57 billion portfolio of leveraged loans, lose about $1.3 billion on the value of securities backed by subprime loans, and lose $600 million in fixed-income credit trading, as the bank had trouble navigating market volatility.

Citigroup's announcement was the latest disappointment resulting from this year's problems in the mortgage industry and financial markets.

Meanwhile, Swiss banking giant UBS disclosed plans to post a third-quarter loss of up to $690 million due in part to losses linked to U.S. subprime mortgages and shed 1,500 jobs by the end of the year.

Among those leaving the work force of 80,000 people as a result of the losses are the investment banking chief, Huw Jenkins, who will step down to become an adviser, and Group Chief Financial Officer Clive Standish, who will retire.

Marcel Rohner, the CEO, will takeover Jenkins' post.

"UBS operates on the principle that management is accountable to shareholders," Rohner said. "These events have led to the management changes announced today."

Subprime mortgages — home loans given to customers with poor credit history — have gone delinquent or defaulted at increasing rates this year. As investors pulled back from buying mortgage-backed and other types of debt, many banks have needed to lower the value of their loans, or get stuck holding them.

Whether the disclosures account for all of the damage wreaked on the financial organizations for the year is not known.

But analysts have predicted major banks may have decided to take hefty losses now — at the start of the fourth quarter — in order to clean up their balance sheets ahead of the new year.

The outcome was far more dire for some small financial institutions.

On Friday, federal regulators shut down a small online bank called NetBank Inc. that failed because loan defaults.

From NPR reports and The Associated Press

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