Never underestimate the value of keeping talent after buying an independent mortgage company.
That wisdom - and a lesson in the importance of retaining the smaller company's agility - is what Chase Manhattan Corp. took away from its 1994 purchase of American Residential Holding Corp.
The New York banking company paid $348 million for American Residential, then among the most productive and well-regarded mortgage companies in the country.
Three years later most of American Residential's top managers are gone, amid assertions that Chase took too heavy a hand in running its new shop. "It was just too much of an abrupt shift" in operational styles when Chase took over, said a one former American Residential executive. "Suddenly there was so much red tape."
Chase management would take weeks to approve matters like hirings and price changes that American Residential executives were used to moving on in days, the executive said. "We lost a lot of talent to rivals and saw business slow because we couldn't stay competitive on pricing."
Chase executives acknowledge mistakes were made, but blamed some attrition on a downturn in the mortgage market, and said that other things, including the integration of back offices, went well.
They said the main change they made was to revamp American Residential operations, changing the pricing and credit policies and the production mix to better suit a banking operation.
But aside from making standard back-office reductions that occur during any consolidation, the bank also cut at the lifeblood of American Residential by alienating many of its top executives, industry observers said.
Something of a domino effect occurred at American Residential, with the company's top two executives leaving almost immediately after the Chase purchase and its production chief following within a year. After that, turnover accelerated as several heads of former American Residential regional loan offices quit and took their staffs of 15 or 20 people.
Could Chase have done some things differently? Certainly, said Richard Mirro, who was executive vice president of Chase Mortgage and is now president of Dime Mortgage Corp. "Change is not something everyone enjoys."
Chase could have been quicker to act on staff decisions and production issues in the fast-moving mortgage business, said Mr. Mirro, who oversaw systems and operations. Chase could have been "a little crisper with decision-making."
And it could also have been more sensitive to the morale of American Residential's staff. "Any merger creates feelings of uncertainty and insecurity," Mr. Mirro said.
But Mr. Mirro also points out that Chase's timing played a role in the upheaval that occurred at American Residential.
The entire mortgage industry went into a slump just after the purchase, leading to scores of layoffs across the industry.
Mr. Mirro said back-office consolidation of operations like underwriting and accounting went very well and that not all top managers left after the purchase.
"A lot of people oversell the difficulty of the transaction. I fully expect our upcoming purchase of North American Mortgage to be perceived as an easier process," he said.
Mr. Mirro was referring to the North American Mortgage operation for which Dime agreed in June to pay $374 million.
Mr. Mirro and Dime Mortgage chairman Fred Koons, who headed Chase Mortgage during the American Residential purchase, are preparing for the North American Mortgage addition.
For instance, Dime is working closely with North American Mortgage executives to set the right tone for the teaming, Mr. Mirro said. That kind of affiliation could avoid a repeat of difficulties that American Residential staff had with Chase, people close to the matter say.
Being "flexible and nimble" and willing to work with managers are crucial when a bank takes over a mortgage company, said Felix Beck, who was chairman of Margaretten & Co. when the lender was bought in 1994 by Chemical Banking Corp.
Serving as chairman emeritus, Mr. Beck remains with the operation, which became Chase Mortgage through last year's merger of Chemical and Chase Manhattan.
Chase Mortgage chairman Tom Jacob "sets the right tone" by listening to staff and keeping his ear to the market, said Mr. Beck, who just extended indefinitely a contract with Chase that was set to run through this year.
"He recognizes that you have to act quickly in this industry."
