Bay View Capital Corp. of San Mateo, Calif., is shutting down its money-losing franchise lending division in an effort to pretty itself up for a potential suitor.
The $6.4 billion-asset parent company of Bay View Bank announced Monday that it is closing Franchise Mortgage Acceptance Co. this month.
Bay View - which acquired the Los Angeles lender to fast-food restaurants, gas stations, and convenience stores last year for $275 million - said it will lay off 140 employees and take a charge of up to $14 million in the third quarter. Also, Wayne L. Knyal, founder of Franchise Mortgage Acceptance, is to resign from Bay View's board of directors.
The company also has entered into an informal agreement with the Office of the Comptroller of the Currency that requires Bay View Bank to adopt a new budget and new strategic and capital plans to reflect the unit's closing. Bay View also expects to arrange with the Federal Reserve for its prior approval of any common stock dividend payment.
Edward H. Sondker, Bay View's president and chief executive officer, called the decision to sell Franchise Mortgage Acceptance "regrettable."
Bay View would have preferred to "complete a sale of FMAC, but it became apparent in the last two weeks that this was not going to be the case," Mr. Sondker said in a conference call with analysts Tuesday.
The company decided to enter the risky franchise lending business shortly after it converted from a thrift to a commercial bank.
Franchise Mortgage Acceptance's high overhead, and the lackluster demand for its loans in the secondary market, gave Bay View headaches from the start. The company's second-quarter net income fell 97.3% from a year earlier, to $204,000, or 1 cent per share.
Bay View officials hope that closing the franchise lending unit will make the company more attractive to potential suitors. In May the company hired Merrill Lynch to help find possible buyers for the unit, as well as for the entire company.
The company realized last week that no one would be interested in it until the franchise unit was closed, Mr. Sondker said.
"Merrill Lynch will now evaluate what our options are, looking at the individual units of the bank, as well as the overall company," he said. No specific suitors are waiting in the wings, he said.
According to several analysts, Wells Fargo & Co., Bank of the West, and other regional banking companies may seriously consider buying Bay View.
"Now that they have a cleaner, more streamlined operation, and the FMAC obstacle has been removed, you will probably get a few more buyers at the table," said R. Jay Tejera, a senior analyst at Ragen MacKenzie in Seattle.
John Kline, an analyst at Sandler O'Neill & Partners in New York, said some companies "love their deposit franchise, but they viewed their FMAC assets as kind of a toxic."
Mr. Sondker said the closing would eliminate about $5.7 million of quarterly expenses and could eliminate up to $3.6 million of quarterly goodwill amortization.
The company said it will keep its $1 billion portfolio of franchise loans on its books, as well as $258 million of asset-backed securities. It will also retain the servicing rights of a $2.1 billion portfolio Franchise Mortgage Acceptance had securitized before it was bought by Bay View.
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