Lehman Brothers closes sub-prime unit

23 August 2007

Lehman Brothers has closed its sub-prime lending unit, leading to the loss of some 1,200 jobs.

The closure of BNC Mortgage is expected to cut the firm's earnings in the third quarter by $52 million, in what is the latest in a series of setbacks for investment banks resulting from difficulties in the US sub-prime mortgage market.

Lehman blamed the closure on "market conditions" that necessitated "a substantial reduction in its resources and capacity in the sub-prime space."

Peter Sorrentino of Huntingdon Asset Management told the Bloomberg news agency: "They're reducing costs at a time when there's no demand for the mortgages such lenders are producing.

"It's a relief for investors the announcement isn't about some poisonous debt that went sour on their balance sheet.''

Lehman is the biggest underwriter of US bonds backed by mortgages and was one of the first US investment banks to make loans to sub-prime borrowers with the intention of then packaging the mortgages into bonds.

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