Just weeks after the collapse of a highly public round of merger talks and the ouster of its chairman, Bank of Boston Corp. is eying the purchase of a huge mortgage company.
Bank of Boston's Jacksonville, Fla., mortgage subsidiary has formed a joint venture that is bidding for Prudential Insurance Company of America's home mortgage unit, sources close to the deal said. A Bank of Boston spokeswoman declined to comment.
The Prudential unit, Residential Services Corp. of America, Clayton, Mo., is the largest mortgage company ever put on the selling block, with a servicing portfolio of $75 billion. The company, led by Marvin Moskowitz, is expected to fetch up to $1 billion.
Industry sources expressed surprise that Bank of Boston should emerge as a bidder while grappling with fundamental questions about its future.
Last month, Bank of Boston's failed attempt to pull off a merger of equals with CoreStates Financial Corp. led to the forced resignation of its chairman, Ira Stepanian. Now the company is widely believed to be ripe for takeover.
The Prudential bid "is somewhat odd, in the sense that they are taking a strategic move with uncertainty of the direction they are taking," said Bill Spinnard, a managing director at Furash & Co., Washington.
But, he added, Bank of Boston appears to be determined to expand in mortgage banking "regardless of what else is going on there."
BancBoston Mortgage Co., whose partners include a venture capital group, joins GE Capital Mortgage Services Inc. in bidding on the entire Residential Services operation.
It was originally thought the sale would fetch at least $1 billion. Now, however, industry sources say the servicing portfolio may no longer be worth what it was just a few months ago, because declining interest rates increase vulnerability to prepayments. Even a conservative valuation might put the price of the servicing at perhaps $750 million.
The value of the package may be irrelevant, however. According to a source close to the deal, the diverse unit will be broken up and sold off in pieces.
Brenda White, a managing director at UBS Securities, said that a joint venture made sense for Bank of Boston, which lacks the capital base of its competitors in the mortgage industry.
"There are a number of parties whose goal is to keep up with the consolidation in the mortgage industry but have limited capital," Ms. White said. The alternative is to leave the mortgage business, she said.
The hope of smaller companies is that by joining with other parties they will enjoy the benefits of economies of scale, Ms. White said.
She said she thought a joint venture might be problematic only if it included more than one commercial bank, which might compete for the cross- selling rights.
"If they can structure something and everyone is happy with what they are to get out of it, it can make a lot of sense" for BancBoston Mortgage, Ms. White said.
An analyst who has spoken out about Bank of Boston's recent troubles said that the turmoil at the bank would not affect such an acquisition.
"Their problems are not profitability," said Nancy Bush, an analyst at Brown Brothers Harriman. "Fundamentals of the company are as good as they have been at any time. All the stuff in the last few weeks is independent of mortgage banking."
The bank has been reviewing its commitment to the mortgage banking industry for some time, Ms. Bush said, and has not made its plans for the mortgage unit public.
BancBoston's servicing portfolio is currently $31.4 billion.
