Bank of Boston Still Wants To Sell Subprime Car Lender, But Bidders

A top Bank of Boston Corp. official said this week that he's still eager to sell the company's subprime auto finance unit, but investment bankers said his options may be limited after the ill-fated deal to sell the unit to Mercury Finance Co.

Bank of Boston agreed Jan. 12 to sell its Fidelity Acceptance unit to Mercury in exchange for a 16% stake in the company and two seats on its board. The deal blew up, however, after Mercury's stock price collapsed Jan. 30 when accounting irregularities came to light.

Speaking at a convention here Monday, William H. Parent, director of mergers and acquisitions, said he still hopes to sell the unit in exchange for stock and seats on the acquirer's board of directors. "We'll want an equal or greater stake in other parties than we were to have with Mercury," he said in an interview after his speech, adding that Fidelity has "a fantastic business."

But unloading Fidelity Acceptance onto another subprime auto financier may be the best Mr. Parent can hope for, other merger experts said.

Sectorwide problems since the Mercury debacle have reminded bankers that vast cultural differences separate their business from subprime auto lending. And that gap, industry observers said, could make it difficult for Bank of Boston to find another banking company or other strong finance company to take Fidelity Acceptance off its hands.

Investment bankers in Tucson warned bank executives that buying or doing a joint venture with a subprime lender is not for the faint of heart.

"Are you prepared to seize people's cars and throw them out of their homes?" asked Mark Biderman, managing director at Oppenheimer & Co. It has been a leading brokerage advising subprime auto lenders and taking them public.

The notion that subprime customers could become bank customers is a delusion, he added. "These people don't have bank accounts and never will."

The trick to making a bank-subprime auto lender marriage work is for the bankers to leave the lenders alone to run their niche business, said Robert A. Baer, senior managing director at Bear, Stearns & Co.

But given the difficulties subprime auto lenders have had lately in managing their affairs, that may be asking a lot of bankers.

"I've got a bank client who has a subprime division," Mr. Baer said, "and they see how great they're doing-a 30% return on equity. So I've suggested they either buy more and become a big player or sell and get out completely. But my client says, 'I can't sell because look what the business is doing for me. And I can't buy more because I stay up at night all the time wondering what those guys are up to.'"

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