Layoffs and Bankruptcies in the Financial and Mortgage Industries
The current housing slump has led to foreclosure troubles for millions of American families, who find themselves unable to pay mortgages or suffering from a landlord's foreclosure proceedings. But homebuyers are not the only ones affected by the state of the housing market.
The mortgage industry—which enjoyed great financial gains during the housing boom—is now experiencing serious financial hardships. Layoffs in the mortgage sector in 2007 have already reached an all-time high of 130,000. And there's no end in sight.
Florida home builder Levitt Corp. reportedly filed for Chapter 11 bankruptcy protection in November. As recently as 2005, the company was issued as many as 14% of all building permits given in its southern Florida county, according to the Bradenton Herald. By late September, Levitt apparently reported $531 million in liabilities and only $442.7 million in assets.
After a significant third quarter loss, homebuilding company TOUSA is considering filing for Chapter 11 bankruptcy, according to Reuters reports. Sources indicate that the company will consider all in- and out-of-court options to restructure their finances in the coming weeks.
Banc of America Securities, the investment banking sector of Bank of America, laid off about 400 employees as the troubled subprime industry caused significant losses. The move, which came late in October, follows the current trend for large equity and investment banking firms.
In late October, investment bank Bear Stearns reportedly cut 310 jobs, or 2% of its staff, to reduce costs. Officials have apparently claimed that the layoffs indicate a shift in infrastructure and balance, and that the company will continue to hire new employees in areas where they're needed.
Merrill Lynch let go its Chief Executive Officer, Stan O'Neal, late in October, according to reports. The cut came after a meeting in which the CEO apparently admitted that he did not know where the market would head next. Though O'Neal is not receiving any severance pay, sources indicate that he will keep stock options valued at $161.5 million and will be provided with an office and secretary for three years by Merrill.
Investment banking firm Morgan Stanley laid off 300 employees in October, market sources report. Employees from all levels lost their jobs, and some international employees were even affected. According to reports, officials at the company cite general slackened activity in the global credit market as the cause for the company's financial losses that have led to the layoffs.
In early October, Credit Suisse announced 170 layoffs for its New York offices in addition to the 150 announced for NY and London offices the week before, according to reports. Officials from the company have reportedly speculated that problems connected with subprime investments will linger for the next six to 18 months.
September saw the massive Countrywide Financial layoff of 12,000 employees—nearly 20% of the company's workforce. After reportedly investing in many short-term, unsustainable loans (rather than more reliable, slower-growing loans), the company could no longer sustain its entire workforce. When subprime loans failed to deliver revenue, Countrywide needed to make serious cutbacks to stay afloat.
IndyMac Bank announced its plans to eliminate 1,000 positions, about 10% of its workforce, reports show. The mortgage lending company is Los Angeles' largest savings and loan, and the United States' seventh largest. Much of its business in recent years has reportedly been in financing home loans for individuals and families.
After a reported third-quarter loss of $81.6 million, Capital One Financial Unit closed down its Greenpoint mortgage unit, which it acquired only last year. Sources show that this closure translated to job loss for 1,900 employees, and came on the tail of layoffs for 2,000 Capital One employees at the beginning of the summer.
In August, Accredited Home Lenders Holding laid off 1,600 employees. August marked the beginning of a surge in mortgage industry layoffs, according to sources, probably because that's when Wall Street began feeling the effects of the subprime lending crisis.