Credit crisis claims 400 jobs at lender

May 20 2008 by Peter McCusker, The Journal

MORE than 400 staff face the axe in Sunderland after a troubled US bank decided to shut its mortgage lending business.

Northern Rock was the first and so far biggest North East casualty of the credit crunch and yesterday workers at the Future Mortgages call centre in Doxford Park became the next.

Banking corporation Citigroup said it planned to shut down mortgage supplier Future Mortgages and its CitiFinancial loans arm. Both are to stop lending to new customers tomorrow.

About 400 staff at the Sunderland call centre have been told they will be made redundant. Another 270 jobs will be axed at Citibank’s 49 CitiFinancial branches in the UK. This includes sites in Newcastle and Middlesbrough.

George Blyth, Doxford’s former representative on Sunderland City Council, said: “This is absolutely devastating news.

“The Doxford International Park was the one place in town bringing in jobs following the loss of the jobs in heavy industry. To start losing jobs there now is not good.”

North East Chamber of Commerce policy director Andrew Sugden said: “This must be a terrible shock for the 400 workers, but they can take some solace in the fact the North East is the fastest growing region in the country.

“There are increasing numbers of jobs available. If it is effectively managed and the support is in place, they should be able to get careers elsewhere.”

The region’s worst fears of the effects of the credit crunch were confirmed two months ago with the announcement of 2,000 job cuts at Newcastle bank Northern Rock, which was nationalised earlier this year.

Now many in the North East business community fear that although the region’s relatively small finance sector will be largely unscathed, there may be widespread troubles ahead for subsidiary sectors, such as call centres.

Regional head of stockbroker Barclays Wealth, Andrew Miller, said: “It would be foolish to think there will not be more fall-out from the credit crunch. Nobody has got the answer to where it will end.

“At first it was Northern Rock and the banks, but now it is spreading to the estate agents, who are laying off staff, and it may yet sift out into other businesses, although company profits are holding up well.”

Earlier this month The Journal reported that more than 100 estate agency workers had lost their jobs in the region and about 10 branch offices had been closed as the housing market slowed.

Assurance director at the Newcastle office of accountants PricewaterhouseCoopers, Mike Jeffrey, said: “What we have seen is most financial institutions have been more choosy about who they lend money to. The impact of this is redundancies in financial institutions, not just the Northern Rock.

“Businesses are putting off making investment decisions and that is compounding the problem.”

CITIGROUP

CITIGROUP has been one of the major losers in the sub-prime US mortgage difficulties. Late last year it announced a profits fall of almost 60% after revealing write-downs of $10bn in sub-prime mortgages, which led to the resignation of the then chief executive Charles Prince.

Last December, Vikram Pandit was named Citigroup’s new boss and immediately announced a review of operations. Last month he announced plans to cut 9,000 jobs from its 370,000 global workforce.

Last week he said Citigroup was to “divest non-core business” and Future Mortgage and CitiFinancial are the initial casualties.

Business manager for Citi’s UK consumer business, Bert Pijls, said Future Mortgages and CitiFinancial had not been “identified as areas for strategic growth”.

He said: “We are committed to ensuring that staff who are potentially impacted by these proposals are treated fairly and made aware of all the options open to them.”

About 8,000 people work at the Doxford business park. Future Mortgages had been established for more than 10 years and owned by the Citigroup for the past six.

Citigroup, which also owns the Egg credit card business in the UK, said it was proposing to close the Sunderland site by mid-2009 at the earliest.

Future Mortgages has about 26,000 customers and less than 1% share of the UK’s mortgage market. CitiFinancial has 66,000 customers with personal and home-owner loans, with a typical advance in the £5,000 region.

Administration of both businesses’ loans will transfer elsewhere into the Citigroup empire under the closure plans. Citi has some 200 million customer accounts and does business in more than 100 countries.

They are the latest sub-prime lenders to face closure in the wake of the sub-prime crisis.

Earlier this year US bank Morgan Stanley announced its Cheshire outpost Advantage Home Loans would shut with the loss of 160 jobs.