March 5, 2008

JustQuotes: Talk About Terrible Timing (And Why He's A Former)

"Merrill Lynch & Co. will eliminate 650 jobs and record a $60 million charge as it stops making new home loans through First Franklin Financial, the subprime lender that former Chief Executive Officer Stan O'Neal bought in 2006.

Most of the job cuts at San Jose, California-based First Franklin will take place this month, Merrill spokesman Bill Halldin said. About 80 employees will remain at the unit to handle activities related to First Franklin's past loans, he said. Merrill announced the cuts and the charge in a statement today."

Merrill Exits Subprime Lending, Cuts 650 Jobs at First Franklin [Bloomberg]

First Published: March 5, 2008 1:30 PM

Comments from "Plugged In" Readers

Little job cuts like this in the Bay Area don't really affect anything. Google, with its soaring stock price, will soak up all those out-of-work mortgage brokers and realtors no problem.

Posted by: Jimmy (Bitter Renter) at March 5, 2008 4:44 PM

Jimmy, 650 jobs is not insignificant -- certainly not to those people and their families. Also, the financial institutions are like Canary birds in the mines and is likely an early warning signs. I guess the ORH post stole the thunder today, but the big news to me are these layoffs and the Fed telling banks to write down loans for underwater home owners. This is major news and you don't have to be an economist to see that the banks 'might' consider reducing your loan if it prevents you from defaulting. If you don't have a job than there is nothing preventing you from defaulting.

My question is: how many of those 650 employees who no longer have jobs were the type of individuals who might need the Fed's proposal. National stats say that consumers have never had a lower savings rate, or lower savings to provide a financial cushion in the event of a job loss. So basically, the probability of these now-jobless individuals / families defaulting and losing their home has greatly increased.

Oh, and Steve Jobs didn't send a memo to employees telling them to hang in there, keep morale up and don't fret about the lower stock price for nothing. GOOG's stock has decreased a LOT as well. Again, if GOOG and Apple are seeing trouble, the "other guys" aren't far behind.


There is a worst case scenario here that is very ugly.

Posted by: eddy at March 5, 2008 6:51 PM

Jimmy was being sarcastic.

But you are right that the economic downturn is starting to look a bit uglier in this area. I hope we weather it, but history says we'll do about as well or poorly as the rest of the country. Not a good sign for slowing the price declines that were accelerating even when the tech market was booming.

Posted by: Trip at March 5, 2008 8:21 PM

I know :-) I was just taking the opportunity to highlight the seriousness of this issue. The ORH topic seems to be diverting the focus of the community to issues I don't care about as its a foregone conclusion that the soma condo market is going to suffer from over saturation and price declines in the short run. I think long term the Soma condos are going to do just fine -- but the storm is comming.

Posted by: eddy at March 5, 2008 9:04 PM

I think we glossed over the "timing" issue in this post. Stan O'Neal was dumber than a box of rocks buying a subprime lender in 2006. This whole fiasco was obvious to anyone with a brain. Google around for a letter from Hayman Capital from last summer, which describes how Wall Street realized as early as 2005 that the game was over, so they went scouting for unsuspecting and easily duped Asians and Europeans to dump the soon to be worthless subslime MBS. Nevertheless, Mr. O'Neil left with an exit package of $161.5 million - the 5th highest ever for a departing US executive according to Bloomberg a few months back.

Now, for the people at First Franklin. That's a different story. The mom of one of my best friends - a money manager - works there, and worked there from before Merrill bought them. He and I have been joking for MONTHS - at LEAST since August 2007, that they were all going to lose their jobs. His mom understood that, and really didn't care (she's financially secure). If you were working there, you would have had to be as stupid as a stump not to see this coming - loan origination volume as of October 2007 had fallen something like 95% YoY! Most of those departing employees will get between 1 and 4 months' severance, maybe $5K-40K on average (I don't know the exact numbers - just guessing). Unlike Stan O'Neal, their failures were small, and so their exit pay will be correspondingly small.

Ayway, while I guess it's sad from a human interest perspective, the economic tragedy is not that these 650 are losing their jobs. It is that they HAD these jobs in the first place. It is hard to conceive of a more worthless and less productive industry than the pushing of debt to inflate the value of a basic necessity like shelter. Even trading at a hedge fund is economically more productive - and that's saying a lot! But then, without the legions of worker bees that fed the debt production machine, Stan O'Neal never would have had his payday.....

Posted by: Satchel at March 5, 2008 9:56 PM

I really feel the worst is behind us here in San Francisco. In spite of FFF shutting down, regional employment remains strong and prices have stabilized.

Posted by: Mystery Realtor at March 6, 2008 5:25 AM

Satchel:

I agree, all the Franklin staff knew that they would soon lose their jobs.

however: the problem is that many of them were high paid (relative to their skills), and it will be difficult for them to find replacement employment for similar income.

similar to the laid off auto workers in the rust belt. Sure, many knew it was coming, but where else can you be an assembly worker making $30-50/hour?

thus, it will harm most of these families unless
-they are lucky enough to find similar paid employment
-they are like your friend's mom who was old enough and smart enough to have saved up some money (a 26 year old wouldn't have that opportunity as example)
-they are independently wealthy.

I agree with you, those jobs should never have existed in the first place... but the employees still have my best wishes... (sort of like the laid off pets.com staff in the 00's)

Posted by: ex SF-er at March 6, 2008 5:27 AM

Lastly:
I wouldn't be too sure that the new FHA rules won't help people IN THE FUTURE.

right now, people can get Jumbo loans. There is a possibility that they WON'T be able to get them in the future. (at least not at reasonable rates) If they are offered, it may be at rates of like 10-20% as example (TOTALLY MADE UP NUMBERS).

The role of Fannie/Freddie and FHA is that they are LENDERS OF LAST RESORT. if the private mortgage system freezes (as it is freezing).

just yesterday Thornburg mortgage defaulted on its obligations, starting a cascading cross default clause. It is very possible that they will go bankrupt. (their stock is down 60% in just a few hours). I'm not sure that they can survive this... they barely survived this a few months ago. As I said in the Thornburg spread, they seem to be a pretty upstanding group.

The problem for jumbo loans: Thornburg is considered to have THE BEST loan portfolio of Jumbos by far in the industry. Their mortgage portfolio has I belive the LOWEST % of defaults (something like only 0.25%). Their DTI ratios are high, like all Jumbo loan providers...

LINK
or
LINK

Posted by: ex SF-er at March 6, 2008 6:00 AM

I'm glad this thread gained a little traction. I actually learned a few things by reading the last few posts. Thank you. The drivel on the other threads is mind numbing. I guess it's good for ad revenue though! :-)

[Editor's Note: We'll take quality over quantity every time.]

Posted by: eddy at March 6, 2008 10:06 AM

Post a comment


(required - will be published)


(required - will not be published, sold, or shared)


(optional - your "Posted by" name will link to this URL)

Remember Me?

(you may use HTML tags for style)


Continue Perusing SocketSite:

« 700 Valencia Street: The Details And Designs For Moving Forward | HOME | New Designs For Dwellings (And Retail) At Market And Sanchez »