E-Loan Inc. is buying the unprofitable CarFinance.com Web site, 80% owned by Bank of America Corp., in a stock-swap.
Bank of America, based in Charlotte, N.C., would wind up with a 5% stake in E-Loan, an Internet lender based in Dublin, Calif. This stake would be worth more than $67 million.
The deal, announced Monday, is to close in the third quarter.
"This transaction will help us form a solid strategic alliance with a well-established, publicly traded Internet company that is significantly larger and more diversified than CarFinance.com," said Kenneth D. Lewis, president of the $614 billion-asset banking company, in a prepared statement.
Part of the rationale behind the deal is to give three-year-old CarFinance.com a chance to grow by making it part of E-Loan, said Andrew B. Collins, an analyst at ING Barings. "It's a question of where Bank of America is going to get the most value at this point from CarFinance and become a larger part of the Internet," Mr. Collins said.
The alliance would also position Bank of America to benefit from E-Loan's technological know-how, the analyst said.
The remaining 20% of CarFinance.com is owned by its president, Robert Ferber, and others, who are also to get shares in E-Loan. Mr. Ferber would continue to manage the company.
E-Loan's chief executive officer, Chris Larsen, said the deal is an important step in its quest to expand beyond home loans and offer consumers a full line of debt services.
Though E-Loan would give up 5% of its shares, it would gain a preferred partnership with the largest banking company in the country -- one with a huge customer base and distribution system.
"I think it's going to be tough for the pure on-line plays to make it alone in the business two or three years from now," Mr. Collins said. "They just can't offer the products and can't support their customers.
"It's also a matter of funding. Where is the money coming from? Clearly, the traditional banks' funding base is much more established and useful in times of uncertainty."
Mr. Larsen emphasized that Bank of America's minority stake in the company would not hurt other lenders on the E-Loan network. Bank of America would win loans only if it offered the best price, he said.
