Capital One Financial Corp. said Monday that it will shut down its GreenPoint Mortgage Funding Inc. unit by yearend.
The $145 billion-asset McLean, Va., banking company said in a press release that it had already stopped originating mortgages through GreenPoint after realizing that "recent and continuing developments in the mortgage markets reduce the long-term outlook for profitability in the business." The company will close GreenPoint's headquarters in Novato, Calif., along with 31 offices nationwide. It will also trim about 1,900 jobs at the mortgage unit, which primarily originated and sold alternative-A mortgages. Capital One had telegraphed to investors last week that it was weighing options for the unit in light of market conditions.
Capital One said it expects to record $860 million in charges, or $2.15 a share, with most to be incurred this quarter and next. Of that, about $100 million would cover severance, benefits, and facilities closures, and another $110 million would cover after-tax valuation adjustments tied to GreenPoint-originated loans that Capital One will retain. The rest of the charges address the noncash writedown of goodwill tied to Capital One's acquisition of GreenPoint as part of its December purchase of North Fork Bancorp of Melville, N.Y.
The company also reduced its full-year earnings guidance to $5 a share, from $7.15, to reflect the charges.
Richard Fairbank, Capital One's chairman, president, and chief executive, wrote in an internal memo obtained by American Banker that the continuing liquidity crisis for mortgage originators spurred the decision to close the unit. "We acquired the GreenPoint business … anticipating that it would be a growth platform for the company based on the historic performance of that business," he wrote. "Unfortunately, GreenPoint has run into unforeseen challenges that are beyond its control."
Though Mr. Fairbank had long harbored reservations about entering the mortgage business, in March 2006 when he announced the $13.2 billion North Fork deal he said he had become more open to the business line. Having a national mortgage origination platform, he said at the time, would be "a very important part of the future success of any company that wants to be an endgame player" in financial services.
Company spokeswoman Tatiana Stead said that Capital One made an effort to learn about the mortgage business and make it work.
The company explored all its options, she said, and "this was what made the most sense." The GreenPoint job cuts are to be in addition to the 2,000 companywide layoffs that Capital One announced in June, she said.
