GE Capital appears close to giving up on its attempt to sell its mortgage business, but some industry sources said it was still negotiating late last week with a potential buyer.
Employees of the mortgage unit, GE Capital Mortgage Corp., were recently told that bids had been rejected and that management did not anticipate offers coming back on the rejected bids.
That would seem to corroborate published reports that the sale was off, or nearly so. But the industry sources said a sale is still possible, and negotiations continued last week with a potential buyer.
By Thursday, the company was said to have agreed to a structure and was still working out the price of the deal, these sources said.
Some speculated that the deal's structure might have GE Capital retaining an equity stake in the mortgage company.
This month National Mortgage News reported that prospects for a deal looked slim. Last week the mortgage company named Glen Messina executive vice president and general manager of GE Capital Mortgage Services, which handles servicing and originations.
Mr. Messina had been acting general manager since January, when Jenne Britell left the unit for a European post. By making Mr. Messina's appointment permanent, the company may have signaled its intention to stay in the mortgage business, some suggested.
A spokesman for GE Capital Mortgage, which has never acknowledged that it was for sale, declined to comment last week.
In January American Banker reported that Citicorp was conducting due diligence on GE Capital's mortgage operation for a possible acquisition. Citicorp later dropped out of the bidding for the unit, which was said to be worth $1 billion to $1.5 billion.
Chase Manhattan has also been a bidder but had also lost interest by last week, industry sources said. That would leave Kohlberg Kravis Roberts & Co., which has been working with former Citicorp Mortgage president Richard Thornberry, who left Citi in March.
But GE Capital has been unable to find bids at or above book value. "They didn't get their price," said an investment banker who works with many mortgage companies. "There was a significant value gap. This is not a good market for selling a portfolio of this kind."
GE Capital buys mostly "jumbo" loans-loans too large to sell to secondary market agencies. Jumbo loans are more likely to be refinanced, so the $96 billion servicing portfolio caries a "large concentration of payoff risks," the investment banker said.
Moreover, he said, GE Capital's servicing is "operationally complex" and organized by function; the same loan may be serviced in more than one city, adding to the servicing expense.
"It's hard to shrink the platform," the investment banker said. "You could take thousands of loans out and not fire one person."
Servicing costs have been said to be about $100 per loan per year, compared to an industry average of about $81 for portfolios larger than $20 billion.
