Merrill to shut down subprime lending unit: report

NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.N plans to wind down most of its First Franklin subprime mortgage lending unit, responding to continued deterioration in U.S. mortgage markets, business news channel CNBC reported Thursday.

The move could result in the elimination of 400 to 500 jobs starting next week, CNBC reported. Merrill would keep First Franklin's loan servicing business, which could perform well in the current mortgage and housing markets, CNBC said.

Merrill spokeswoman Jessica Oppenheim declined to comment.

Merrill, which ceased originating subprime mortgages on December 28, on Monday said it was "evaluating our continued involvement in this market."

The largest U.S. brokerage house bought First Franklin from Cleveland-based bank National City Corp NCC.N in December 2006 for $1.3 billion, in a bid to expand in a business that had generated big profits for rivals like Lehman Brothers Holdings Inc LEH.N.

The deal closed just before the subprime mortgage market began to collapse.

Last year the unit, where losses mounted as demand for loans disappeared, contributed to distress stemming from exposure to markets slammed by the worst housing crisis in decades.

On Monday, Merrill Lynch in its 10-K annual report disclosed that last year it "substantially reduced" U.S. subprime home lending, mortgage purchases and securitization activities as well as extending credit facilities to other lenders.

Merrill reported mortgage-related losses and write-downs totaling $24.4 billion in 2007. The setbacks contributed to Chief Executive Stan O'Neal losing his job, and have new CEO John Thain scrambling to turn things around.

The annual report shows that Merrill still has significant exposure to risky home loans and related assets.

Merrill declined to say how many people are still employed at First Franklin, which had 2,500 employees at the end of 2006.

(Reporting by Joseph A. Giannone, editing by Gerald E. McCormick)