HSBC closes US sub-prime mortgage unit

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The Independent Online

HSBC has announced the closure of part of its troubled US sub-prime mortgage business, putting up to 750 jobs at risk, as the fallout from the credit crunch continued.

The biggest British bank is shutting Decision One Mortgage, which packaged up risky mortgages sold by brokers and sells them on to investors. The move follows the closure in March of a business that bought mortgages from other banks.

HSBC has been hit by the collapse of the sub-prime mortgage market in America. The bank said it would concentrate on selling and servicing mortgages through its own branches in the US.

Michael Geoghegan, HSBC's chief executive, said: "[This business] is no longer sustainable and not the right place to allocate capital in the future. We said we would make tough decisions and we have done exactly that."

The bank will take a charge of $880m (£435m) for goodwill in the businesses and would write off $65m for redundancy payments and other costs of shutting them.

HSBC bought Household International in 2003 to get into the then-profitable business of lending to risky customers at high margins. The business hit HSBC hard at the end of last year as US sub-prime mortgage defaults rocketed, forcing the bank to issue its first ever profit warning in December.

The bank's bad debt charge rose 63 per cent to almost $6.4bn in the first half of this year.

The United States' worst housing slump for 16 years has forced many companies to shut businesses and shed jobs in mortgages, including Lehman Brothers, the investment bank, and Countrywide Financial, the biggest US mortgage lender. HSBC announced the closure of a mortgage office in Indiana last month with the loss of 600 jobs.

The job losses will affect workers in the states of South Carolina, North Carolina and Arizona. HSBC said it would try to offer some employees jobs elsewhere in its US business.

Northern Rock's shares rose nearly 5 per cent yesterday after slumping earlier in the week. The shares closed at 194p, still less than half their value at the beginning of the week.

The Financial Services Authority warned investors yesterday not to use the panic over Northern Rock to create a false market in shares.

Its market surveillance teams were monitoring share movements and would come down hard on investors who shorted stocks and spread rumours, the regulator said.

Shares of mortgage lenders such as Alliance & Leicester and Bradford & Bingley swung wildly during the week on rumours that they might be the next to seek emergency funding from the Bank of England.

Alliance & Leicester was forced to say its business was sound on Tuesday after its shares fell by nearly a third.