The ninth-largest US bank by market value, Capital One, and one of the biggest US credit card providers, which bought mortgage provider GreenPoint in last year's $13.2 billion purchase of North Fork Bancorp, of Melville, New York, on Monday announced the closure of the unit with the loss of 1,900 jobs .
In 2004, North Fork paid $6.3 billion for GreenPoint Financial Corp., then a large New York savings and loan specializing in mortgages.
In a statement, Capital One said it will take an after-tax charge of $860 million, or $2.15 a share, most of it this year. The company is revising downward its 2007 earnings guidance to approximately $5 a share. Capital One had 2006 per-share earnings of $7.62.
Meanwhile, Thornburg Mortgage, which provides big mortgages on expensive properties, said it would book a $930m third quarter loss on the sale of $20.5 billion worth of mortgage-backed bonds.
Capital One said that current conditions in the secondary mortgage markets create significant near-term profitability challenges, given the company's "originate and sell" business model. Further, recent and continuing developments in the mortgage markets reduce the long- term outlook for profitability in the business, as the company expects markets for prime, non-conforming mortgage products are likely to remain challenged for the foreseeable future. GreenPoint Mortgage will cease making new loan commitments immediately, however, it will continue to meet its contractual obligations to customers for loan commitments that are in the pipeline with rates locked.
"The reductions in demand and pricing in the secondary mortgage markets make it difficult to operate our wholesale mortgage banking business profitably," said Gary Perlin, Capital One's Chief Financial Officer. "Beyond that, Capital One's other businesses are supported by ample liquidity and funding including deep access to deposits, a "stockpile" of subordinated credit card funding in place that allows approximately $9 billion of AAA credit card funding going forward, and a $25 billion portfolio of highly liquid securities."
Thornburg Mortgage, based in Santa Fe, New Mexico, said the securities sale will result in a third-quarter capital loss of about $930 million. After the sale, it reduced its dependence on short-term financing -- including commercial-paper borrowings -- to about $12.4 billion from $32.9 billion as of June 30th.
In another development, the Securities and Exchange Commission (SEC) said that it had filed civil-fraud charges against investment adviser Sentinel Management Group Inc., a development that could rewrite the history of last week's market turmoil, according to the Wall Street Journal.
Early last week, Sentinel, a company that manages short-term cash for hedge funds and futures brokers, told clients it was halting redemptions because of the "liquidity crisis" in the credit markets. The news contributed to a 207.61-point fall in the Dow Jones Industrial Average when it became public Tuesday, and added to the sense of fear that gripped credit and stock markets all week long.
The SEC said Sentinel secretly transferred at least $460 million of its clients' assets into the company's in-house trading account. This occurred at least several months prior to its financial trouble becoming public last week. It used those assets to obtain loans from the Bank of New York, the lawsuit says.
"The credit extended under this line of credit reached as high as $500 million in June 2007 and is now $321 million," the SEC said.
