NEW YORK (AP) – Bear Stearns Cos. said Wednesday it is laying off 310 workers and fusing its two mortgage businesses, after turmoil in the home loan industry contributed to a dramatic slide in the investment bank's profit this summer.
The news came only hours after Credit Suisse Group said problems in the mortgage market will linger as long as 18 months. It announced a fresh round of layoffs in its commercial mortgage-backed securities division, mostly in New York.
Bear said it is integrating its Bear Stearns Residential Mortgage and Encore Credit divisions into a single subsidiary. The new unit will soon begin offering loans that are eligible to be purchased by government-sponsored entities. Such loans are considered safer than most.
Stung by decaying credit quality, investors soured on many types of mortgage debt this summer. Selling home loans and other investments backed by mortgage debt became much more difficult this year, squeezing a key source of profit on Wall Street. More than 50 lenders have gone out of business in 2007 because they were unable to sell their mortgage debt or borrow money.
Bear Stearns, the investment bank most heavily exposed to the home loan market, took a $200 million loss on two hedge funds established to bet on mortgage debt. Those funds are now bankrupt and the subject of litigation.
The flight from risky mortgage debt also led to an 88 percent decline in revenue from Bear Stearns' biggest business — fixed income — in the fiscal third quarter.
Bear Stearns has now laid off two-fifths of the employees in its mortgage businesses this year, the company said. The layoffs announced Wednesday represent 2 percent of the company's entire work force.
The move comes a day after Morgan Stanley unveiled plans to lay off 600 workers and integrate its mortgage businesses into a single unit. Lehman Brothers last month shuttered its BNC Mortgage LLC subsidiary. It has laid off more than 2,000 employees in mortgages.
Shares of Bear Stearns fell 29 cents to close at $128.28 Wednesday. The stock is down more than 20 percent for the year, though it has recovered significantly since dipping below $100 in August for the first time since 2005.
Bear Stearns executives spurred a 2.5 percent sell-off in the stock market in August when, in a conference call intended to assuage investors, they compared the mortgage crisis to the stock market crash of 1987 and the bursting of the tech bubble.