Lehman to fire another 850 workers in mortgages

By Dan Wilchins

NEW YORK (Reuters) - Lehman Brothers Holdings Inc LEH.N said on Thursday it will fire another 850 workers, or about 3 percent of its work force, as it scales back its mortgage lending efforts globally.

Lehman, the fourth-largest investment bank in the United States by market capitalization, said it will trim its U.S. and U.K. home loan operations and close its South Korean mortgage business.

The moves will result in costs of $20 million after taxes, Lehman said.

Two weeks ago, the investment bank said it would fire 1,200 workers as it shuttered its U.S. subprime mortgage lender, following a June announcement that it was cutting 400 U.S. subprime jobs.

"There have been several rounds of layoffs across the industry. Lehman may cut more -- it depends on whether they've cut enough to match the demand, because demand is weaker now," said Cheryl Hua, senior analyst at Profit Investment Management, which holds Lehman shares.

The Lehman layoffs are a sign that revenue from its mortgage business may not come back as soon as previously hoped, analysts said.

Lehman, one of the largest underwriters and traders of mortgage debt on Wall Street, was one of the first investment banks to make home loans itself and package them into bonds.

But the mortgage business has proven more difficult than expected as big homeowner defaults have made investors worldwide leery of mortgages packaged into bonds. Lenders have broadly been hurt by growing defaults amid an extended U.S. housing slump.

National City Corp NCC.N said on Thursday it is laying off 1,300 workers and taking $200 million in third-quarter charges and unusual items, before taxes, in its mortgage banking business.

Most of Lehman's layoffs will be in its Aurora Loan Services unit, which makes "Alternative A" loans to people that have good credit ratings but cannot document income.

Difficulty in subprime mortgages, or loans made to people with weak credit, have spread elsewhere. Investors are increasingly leery of buying bonds backed by "Alternative A" mortgages, hurting many lenders who specialized in those loans.

Sometimes, Alt-A loans were used to buy bigger houses than consumers could afford.

Lehman shares fell 1 percent to close at $53.83 on the New York Stock Exchange.

Lehman shares trade at about 1.4 times their book value, which is low by historical standards.

"An awful lot of value investors are sniffing around Lehman, but they want to wait until they are certain there won't be a catastrophe when earnings are announced," said Brad Hintz, analyst at Sanford C. Bernstein in New York.