Monday, August 20, 2007

Waldo Shows Up At Capital One

Earlier today I posted an article by Bill Gross at Fortune describing the subprime mortgage mess as a huge game of "Where's Waldo?". According to Gross, Wall Street investors are holding their breaths wondering just which financial institutions have exposure to the toxic waste of the subprime and Alt-A mortgages ("Waldo"), just what the fall-out from that exposure will be and if the contagion will continue to spread.

Tonight we learn via the Wall Street Journal that Waldo showed up at Capital One and cost the company $2.15 a share:

Capital One Financial Corp., citing "an unprecedented set of market circumstances," plans to shut down its struggling GreenPoint mortgage unit -- keeping only pieces of a business valued at $6.3 billion just three years ago.

The ninth-largest U.S. bank by market value, Capital One bought GreenPoint in last year's $13.2 billion purchase of North Fork Bancorp, of Melville, N.Y. 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, McLean, Va., 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.


Capital One officials said the bank will close GreenPoint's 31 locations and eliminate 1,900 jobs immediately. The credit-card giant said the subsidiary wouldn't make any more new mortgages but will fund those in the pipeline with locked-in rates.


Capital One isn't exiting the mortgage business entirely. The company will still continue to originate and sell traditional mortgage loans through its 750 bank branches in the northeastern U.S., Texas and Louisiana. Capital One is also retaining a $12.5 billion mortgage portfolio, which includes loans originated by the banks it acquired and $680 million of second mortgages originated by GreenPoint. Capital One said it could have sold those $680 million in second mortgages at a loss but decided to keep them.

Capital One now joins the ranks of Countrywide, BNP Paribas, and IKB as a big-time lender that has taken a big-time hit from the collapse of the subprime and Alt-A mortgage markets.

Some of the shills on CNBC were saying today you should by financial stock because the sector was oversold.

Given that Waldo just showed up at another big-time lender with exposure to the subprime and Alt-A mortgage industries today and wound up costing $2.15 a share, I wonder if the shills will be saying the financials are oversold tomorrow.

UPDATE: The LA Times reports that Countrywide is laying off 550 employees immediately. Add that to the 1,900 that Capital One is laying off and you have 2,450 people who have been laid off in the last two days as a result of the subprime mortgage fiasco.

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