Merrill quits subprime lending, cuts 650 jobs

By Jonathan Stempel

NEW YORK (Reuters) - Merrill Lynch & Co MER.N on Wednesday said it will eliminate 650 jobs as it stops making subprime mortgages through its First Franklin Financial Corp unit.

New York-based Merrill said it is quitting the subprime lending business because of the deteriorating market for home loans, which go to people with poor credit.

It said it will try to sell Home Loan Services, a unit of First Franklin that handles billing and collections. Merrill expects to incur $60 million of charges related to First Franklin, mainly for severance payments and closing offices, with about half the amount in the first quarter.

Merrill bought First Franklin and much of its loan portfolio from Cleveland-based National City Corp NCC.N for $1.3 billion in December 2006.

First Franklin's demise follows a $9.83 billion fourth-quarter loss at Merrill, the worst quarter in its 94-year history, reflecting about $16 billion of mortgage-related write-downs and adjustments.

Ex-Chief Executive Stanley O'Neal had hoped First Franklin would offer Merrill a stream of home loans it could package and sell as securities. But that plan backfired as U.S. housing prices fell, borrower defaults soared, and investors stopped buying many home loans they no longer considered safe.

O'Neal was ousted as Merrill's chief executive in October, and replaced by John Thain, the former chief of NYSE Euronext

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