Bank of Boston Corp. expects to find a new buyer for its Fidelity Acceptance Corp. automobile finance unit and remains open to one "who would give us a stake in another company," spokeswoman Karen Schwartzman said Wednesday.
The banking company had unveiled just such a deal Jan. 13 with Mercury Finance Co. Bank of Boston was to sell Fidelity Acceptance in exchange for a 16% stake in Mercury, then valued at $453 million. But that plan blew up last week amid disclosures that Mercury had overstated its earnings for the past four years, sending its share price into a tailspin.
Bank of Boston scotched the transaction on Jan. 30 as the Mercury crisis came to a head. But that left it without a buyer for Fidelity Acceptance.
Ms. Schwartzman said Bank of Boston may have to wait till early next month to start shopping the company around, because the contract gives Mercury 30 days to cure any alleged breach of contract.
"We are seeking to have that 30-day period waived so that we can go forward in seeking another transaction with another company," Ms. Schwartzman said. "In the interim, we aren't taking any steps in that direction."
Ms. Schwartzman said Bank of Boston's view of the subprime auto lending business "hasn't changed at all" in the wake of the Mercury mess.
"The subprime business is an important business in that it gives people who have damaged credit histories a second chance," she said. "People need transportation to and from jobs in order to move ahead in this world, and an automobile is key to that for most people."
Buyers for Fidelity Acceptance could be waiting in the wings. Bank of Boston turned down two other bids for the company when it awarded the deal to Mercury, according to an investment banking source close to the transaction. However, he declined to name them.
Investment banks said Bank of Boston will probably have to settle for significantly less than it got from Mercury.
"There was a reason Bank of Boston structured their deal with Mercury the way they did," said one investment banker. "They wanted a significant, but not controlling, portion of stock. And they wanted seats on the board. A more reliable company, say a GE Capital, probably won't offer either of those things. That factor could eliminate a lot of candidates unless Bank of Boston rethinks their criteria for a deal."
Thomas McCandless, an analyst at Natwest Securities, said Bank of Boston will ultimately find a buyer, because Fidelity is "a well-managed company."
The bank acquired Fidelity, which reportedly has $1 billion of assets, as part of its 1993 purchase of Society for Savings Bancorp in Hartford, Conn.
In the meantime, a shakeout is under way in which the weaker companies in subprime auto lending are beginning to fall by the wayside. George C. Evans, chairman and chief executive at Search Capital Group Inc., a subprime lender in Dallas, said his company is finalizing a purchase of MS Financial Corp., a troubled Mississippi subprime lender.
"There are a lot of problems in the industry now," Mr. Evans said. "You can expect to hear about other deals like this soon."
The investment banker who advised Mercury on its deal with Bank of Boston, however, suggested that banks ought to wait out an industry shakeout that was exacerbated by the Mercury scandal before pulling the trigger on any deals.
The subprime auto finance sector "can expect very great difficulties in the coming months," said Robert C. Smith, managing director and co-head of the financial institutions group at Salomon Brothers. "The assumptions these companies use may not reflect reality."