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Company News: Home-loan defaults hurt bank profits

FRIDAY, JUNE 15, 2007

NEW YORK – Wall Street investment banks Goldman Sachs Group Inc. and Bear Stearns Cos. on Thursday said fiscal second-quarter profit was squeezed by the nation’s mounting home-loan defaults.

Both investment banks, among the world’s largest underwriters of bonds that back mortgage loans, said the shakeout in the subprime sector continued to erode performance. The industry has suffered this year as delinquencies on U.S. loans to homebuyers with poor credit have risen to a four-year high.

Bear Stearns said its profit slid 10 percent, while Goldman mustered only a 1 percent increase.

Top executives at both investment houses indicated subprime woes aren’t spilling into other areas of the mortgage industry, but that the worst may still be ahead.

“Freddie Mac, the nation’s second largest buyer and guarantor of home mortgages, reported a first-quarter loss of $211 million amid turbulence in the market and erosion in the value of financial instruments it uses to hedge against interest-rate swings.

The government-sponsored company, which is emerging from an accounting scandal, said Thursday it lost 46 cents a share for the three months ended March 31. That contrasted with a profit of $2 billion, or $2.80 a share, in the same period a year ago.

While the full effect of the current housing slump has yet to play out, Freddie Mac’s “credit position has remained strong relative to our historical levels and the market as a whole,” Richard Syron, the chairman and chief executive, said in a statement.

Amid a distressed market for so-called subprime mortgages – higher-priced loans targeted at borrowers with tarnished credit or low incomes – Freddie Mac reported that its credit-related expenses more than tripled in the first quarter, to $193 million from $60 million a year earlier.

“About 27,000 U.S. hourly workers have left Ford Motor Co. under buyout or early retirement offers, the automaker said Thursday.

Ford offered the packages last year to reduce its work force to match lower demand for its cars and trucks.

Initially about 37,000 workers signed up for the offers, but not all have left the company, it said.

Ford has until September to phase in the departures as it closes plants under a restructuring plan, and some of the workers could change their minds and stay with the company.

Ford spokeswoman Marcey Evans said about half the 27,000 who left were not eligible for retirement, which will reduce the company’s long-term retiree health care liabilities.


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