Within a press release discussing events at its investor’s conference, National City Corporation confirmed that it will shed 1,300 employees amid continuing problems in the US mortgage market. The company had signaled that layoffs were in the offing during the middle of August, when it said that it would merge its Home Equity and Mortgage units. Today’s announcement confirms that consolidation effort will cost 500 employees their jobs, while another 800 will be cut from other areas of the company’s mortgage business due to poor market conditions. The company said it expects to record a $200 million pre-tax loss associated with the reorganization and associated layoffs. Included in that $200 million are expected writedowns in the company’s held-for-sale portfolio, and National City said it is evaluating whether it will reclassify these loans — principally Alt-A and closed end seconds — as held-for-investment given what it called a “continued lack of liquidity in the mortgage capital markets.” The company also commented on credit quality, something I had posted on in the not-too-distant past. From the press statement:
The primary area of credit focus is in real estate. While the majority of the company’s real estate risk levels are stable to modestly increasing, there are certain sub-sectors of the portfolio that have come under greater stress as difficult market conditions continue. In particular, portions of the First Franklin sub-prime run-off portfolio, investment real estate, and loans to individuals to finance real estate investment are subject to increased loan loss reserve requirements in the second half of this year.
National City sold the First Franklin business unit in 2007, but held onto a large percentage of the existing loan portfolio originated prior to the completion of the sale.