Lehman to shutter subprime mortgage unit

U.S. investment bank blames the credit market turmoil for move that will affect 1,200 jobs.

August 22 2007: 3:41 PM EDT

NEW YORK (Reuters) -- Lehman Brothers Holdings Wednesday said it is shutting down subprime mortgage unit BNC Mortgage Corp., affecting the jobs of 1,200 employees in 23 cities and resulting in a $25 million charge.

Lehman Brothers (Charts, Fortune 500), a U.S. investment bank with an extensive mortgage business, said credit market conditions prompted it to slash its subprime resources and capacity.

Lehman will continue to originate mortgages in the United States through its Aurora Loan Services LLC platform.

The bank said it will record a $25 million charge covering the costs of severance, real estate and technology connected with the shutdown. Lehman also will write down all of the goodwill related to Irvine, California-based BNC, or $27 million.

Separately, the U.S. mortgage unit of HSBC said Wednesday it will close an office in Indiana, a move that will affect about 600 workers, amid a severe downturn in U.S. credit and housing markets.

Escalating defaults on U.S. home loans have shaken financial markets worldwide, forcing HSBC (Charts), Europe's biggest bank, to restructure its U.S. mortgage operations and set aside $1.7 billion for loan losses in the first quarter.

A prolonged U.S. housing slump has resulted in nearly 88,000 job cuts in the financial services sector, consulting firm Challenger, Gray & Christmas said this week.

Along with HSBC, investment bank Bear Stearns (Charts, Fortune 500) has also taken a substantial financial hit from the subprime problems.