US Job Cuts Add to Cost of Loans Fiasco

The sub-prime mortgage crisis claimed more victims yesterday as an Arizona-based lender with 300 branches filed for bankruptcy, leaving almost 6,000 staff out of pocket and jobless.

First Magnus, which made $17bn (£8.6bn) in loans in the first half of this year, lodged papers at a bankruptcy court a week after announcing that it was not accepting new customers. It sent staff home without their final pay checks but has set up a $1m fund to assist them.

"We are saddened that First Magnus has been placed in this situation by the extensive and sudden liquidity crisis in the secondary mortgage market," said chief executive GS Jaggi.

First Magnus ranks 16th among home loan providers and is the 14th American mortgage lender to go bust since December. Its demise came as President Bush sought to calm nerves, telling reporters at a summit in Quebec: "The fundamental question is 'is there enough liquidity in the system?' And the answer is 'yes'."

For the first time in a decade, the National Association of Realtors revealed that the number of estate agents in the US is declining. It forecast a drop in its membership from 1.4m to 1.3m this year.

In another sign of retrenchment, America's biggest mortgage lender, Countrywide Financial, is cutting 500 jobs largely at Full Spectrum, its sub-prime arm. But Countrywide's shares rose 10% on reports that the billionaire Warren Buffett could be interested in buying parts of the business.

Queues formed at Countrywide branches over the weekend as anxious savers scrambled to withdraw funds. Its chief operating officer, Timothy Wennes, assured account-holders that their money was protected by federal guarantees.

Meanwhile, investigators spelt out the extent of an alleged fraud at Sentinel Management, a Chicago money manager which went bust last week. The firm blamed its demise on the sub-prime mortgage fiasco - but the securities and exchange commission says this was a cover story for illegal mismanagement.

According to the SEC's complaint, Sentinel improperly used $460m of its clients' securities as collateral to borrow $321m. The bank which lent the money subsequently declared Sentinel to be in default and sought to seize these securities - which did not, it emerged, belong to Sentinel.