Kohlberg Kravis Roberts & Co. is jumping into on-line mortgage banking.
The venture capital firm has recruited former top executives from Citibank Mortgage and Prudential Home Mortgage Co. to run the newly formed Nexstar Financial Corp., based in St. Louis.
KKR's decision to build a business from the ground up is a departure for the firm, which is best known for taking over weakened companies. Its push into the mortgage business has been rumored for more than a year.
By building an on-line mortgage lender, KKR is claiming a stake in a high-growth business. The market for on-line loan originations is growing fast: analysts estimate as much as $300 billion in home loans will be made annually over the Internet by 2004.
With the deep pockets of KKR behind it, and seasoned industry veterans at the helm, analysts say the venture could quickly overtake its competition.
Marvin Moskowitz, former chairman and chief executive of Residential Services Corp. of America, the parent company of Prudential Home Mortgage, will be chairman of Nexstar. Former Citibank Mortgage president Richard Thornberry will be chief executive and president, and ex-Citibank Mortgage capital markets director Jerry Halbrook will be chief financial officer.
Don Daniel, former Citibank Mortgage sales manager, will be managing director for business development.
Mr. Thornberry and other Citibank Mortgage alumni have been linked with Kohlberg Kravis almost since their March 1998 departure from the bank.
Industry observers said then that the executives and the venture capital firm were teaming up to buy GE Capital Mortgage Corp., General Electric's home loan unit. The deal was rumored to have been rejected last July, and GE still owns the mortgage company.
A spokeswoman for the new company said Nexstar would not grow by making acquisitions. None of the executives involved were available for interviews, but the company's strategy was outlined in a statement released Wednesday.
"The delivery of consumer financial services products is in the midst of a technological revolution," said Mr. Moskowitz.
The residential mortgage industry is just beginning this change, Mr. Moskowitz said, and Nexstar will be "at the forefront of this transformation."
The new company will be "better positioned to apply state-of-the art technology enterprisewide" to redesign the mortgage process, said Mr. Thornberry.
Observers said that the mixture of KKR's deep pockets and mortgage industry veterans looked promising.
"It's a bunch of guys who know the business-with capital," said Steve Moyer, a Bank of America analyst.
Although a rash of Internet banks and mortgage lenders have appeared in the past year, no one site dominates, Mr. Moyer noted. "There's plenty of room" for a new on-line company, he said. "No one has a strong vehicle or a brand-it's not like you're competing with Amazon.com."
