The combined mortgage companies of Barnett Banks Inc. and Bank of Boston Corp. are planning a public stock offering to help satisfy their appetite for rapid expansion.
The stock sale could be wrapped up before yearend, said Joe K. Pickett, chairman of the new company, Homeside Lending Inc.
"We want to grow, and it's going to take some resources to move on up," Mr. Pickett said in an interview. He did not say what percentage of the company would be offered or how much money would be raised.
The offering would be the first for a pure mortgage company since Resource Bancshares Mortgage went public in May 1993, raising about $55 million. Some finance companies that specialize in home equity loans, such as Money Store and Aames Financial, have successfully floated new shares in recent months.
Homeside - a venture that represents the first time two bank-owned mortgage units have separated from their parents to form an independent company - services about $75 billion of loans.
Leaders of the venture, which now ranks seventh among mortgage servicers, want to quickly top $100 billion to realize the economies of scale they say are needed to make the operation successful. Such expansion would require acquisitions.
The six-month-old company has already made one visit to Wall Street. Last month it quietly raised $200 million by selling notes through a private placement. Mutual fund companies, including Fidelity Investors, bought 60% of the offering, and private money managers and insurance companies accounted for the rest, according to investment bankers.
The Jacksonville, Fla.-based lender, which closed its deal with Barnett on May 31, is not squeezed for money, Mr. Pickett said. But, he added, the company does have needs, such as paying back venture capitalists and acquiring servicing portfolios.
Of the $75 billion of loans Homeside now services, $42 billion came from BancBoston Mortgage when the operation was established late last year, while $33 billion was delivered by Barnett.
In addition to the servicing portfolio, Homeside acquired from Barnett a servicing center, software, a small Honolulu lending unit, and servicing rights on loans that Barnett Mortgage originates for at least the next five years.
In return, Barnett received one-third ownership of Homeside and, according to financial documents obtained by American Banker, $226.1 million. Bank of Boston owns another third, and venture capitalists Thomas H. Lee and Madison Dearborn collectively own most of the balance for the $130 million they put up.
Mr. Pickett, Homeside president Hugh R. Harris, and about 20 other senior managers have modest stakes in the company.
Financial documents show that Barnett Mortgage lost $20.4 million last year, but Homeside executives maintain the operation is a good fit.
While conceding that it had a loss, Homeside's chief financial officer, Betty L. Francis, said the true amount was lower but hard to gauge because of the parent company's accounting.
The disclosure document for the private placement also showed Barnett was building its portfolio of servicing rights rapidly while reporting losses.
The pieces that Homeside acquired will fit profitably with the Bank of Boston operations, Mr. Pickett said.
In discussing the public offering, Mr. Pickett said the sale would supply working capital and also establish a stock price that would facilitate later efforts to raise capital.
Access to capital is a must for mortgage banks, because they lend in large, up-front sums and get their money back in small increments over a number of years.
As previously reported, Homeside in April secured a $2.5 billion syndicated bank loan, including a credit line, to finance day-to-day operations such as loan securitizations and servicing.
Investment bankers expect Homeside to seek at least $100 million, although they said market conditions would influence the final decision.
They added that Homeside would probably offer the shares at a discount to its peer group to give investors an incentive to buy - and because Homeside's emphasis is on wholesaling, which carries narrower margins than retail mortgage sales.
The much larger Countrywide Credit Industries has been trading recently at $23 a share, or 1.85 times book value, while the much smaller North American Mortgage Co. has been at $17.25 a share, or 1.32 times of book.
