Nov. 8 (Bloomberg) -- HSBC Holdings Plc, the biggest U.K. bank, said it stopped sales and trading of mortgage-backed securities in the U.S. after the collapse of the subprime market forced it to close down two lending units.

About 120 securities jobs will be cut globally, including 20 in the U.K., London-based spokesman Pierre Goad said in an interview today. HSBC also ceased investment-banking coverage of health care in the U.S., he said.

The five-month rout in the $6 trillion market for U.S. home- loan bonds has eroded the value of assets from securities backed by subprime loans to securitizations guaranteed by government- linked entities such as Fannie Mae, a Washington-based company. HSBC closed a mortgage office in Carmel, Indiana, in August and said in September it would eliminate more than 750 jobs by shutting its Decision One subprime-mortgage unit.

``They want to minimize the risk of earnings disappointment,'' said Samir Shah, a London-based analyst at Landsbanki Securities who has a ``reduce'' rating on the stock. ``It is not meaningful in terms of profit contribution but it is in terms of brand damage.''

The U.K. bank, which bought Prospect Heights, Illinois-based Household International Inc. for $15.5 billion in 2003, has scaled back U.S. home-equity loans and ousted some of the unit's managers to cap bad loan defaults.

Job Losses

HSBC will keep its asset-backed business both globally and in the U.S., Goad said. That would include securities backed by non-U.S. mortgages.

Options Group, a financial-services recruitment firm, estimated in August that about one in three Wall Street employees involved in creating and selling securities backed by mortgages or pools of loans will lose their jobs this year unless market conditions improved.

New York-based Morgan Stanley, Bear Stearns Cos. and JPMorgan Chase & Co., Zurich-based Credit Suisse Group and UBS AG, Seattle-based Washington Mutual Inc., and Detroit-based GMAC LLC have since cut staff related to the creation or trading of mortgage securities.

``I've been working since I've been 13 years old and it's the first job from which I've ever been fired,'' said Russell Middleton, 46, a trader of so-called agency mortgage-backed securities dismissed by London-based HSBC today.

The decision was a shock because ``it looked like HSBC was the greatest commercial platform to take advantage of the greater Asian interest'' in agency mortgage securities, or ones guaranteed by Fannie Mae; McLean, Virginia-based competitor Freddie Mac; or U.S. agency Ginnie Mae, he said. The $4 trillion market for the bonds rivals the size of U.S. Treasuries.

Non-Agency Bonds

Issuance of so-called non-agency mortgage bonds, the potentially most-lucrative type for bankers, has plunged amid the highest foreclosure rate on record because the debt lacks implied U.S. government guarantees.

Sales tumbled 65 percent from a year earlier in September, to $38 billion, according to Friedman Billings Ramsey Group, an Arlington, Virginia-based securities firm. HSBC was the 25th largest issuer of non-agency mortgage bonds in the first nine months of this year, according to newsletter Inside MBS & ABS.

Creation of collateralized mortgage obligations that repackage agency mortgage bonds to produce new debt with different reactions to changes in interest rates has also slowed amid bond-market turmoil. Sales fell from $24 billion in July to $7 billion last month, according to Bloomberg data.

HSBC set aside $6.4 billion in the first half of the year, mostly to cover U.S. borrowers with patchy credit histories. Chief Executive Officer Michael Geoghegan in July said the company is ``working through the challenges of subprime lending.'' Geoghegan has ousted U.S. managers, including North American CEO Bobby Mehta in February.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; Jon Menon in London jmenon1@bloomberg.net

Last Updated: November 8, 2007 13:56 EST