NationsBank Corp. is in a position to become the nation's largest mortgage servicer as a result of its deal to buy Barnett Banks Inc.
With its purchase of Barnett, NationsBank would acquire 27% of HomeSide Inc., which services $92.6 billion of mortgage loans and originated $9.1 billion in the first five months of 1997.
Many analysts say NationsBank would then acquire the remaining 73% of Jacksonville, Fla.-based HomeSide. BankBoston Corp. owns 27%, and between them the venture capital firms Thomas H. Lee & Co. and Madison Dearborn Partners own another 27%. The rest of the shares are publicly traded; the company went public in January.
NationsBank's servicing portfolio totaled $118.5 billion at midyear. With HomeSide's added it would top $210 billion, surpassing Norwest Mortgage's industry-leading $190 billion.
Purchasing HomeSide would also vault NationsBank into the top five in origination volume. NationsBank originated $6.4 billion of mortgages during the first half.
HomeSide's stock soared 10% Friday after the news of NationsBank's blockbuster deal with Barnett.
Analysts said NationsBank could probably get the rest of HomeSide for less than $1 billion. They pointed out that NationsBank's capital markets subsidiary was the lead manager of HomeSide's latest issue of corporate bonds in June, making it familiar with the unit's assets.
Barnett sold its $33 billion servicing portfolio to HomeSide last year in exchange for its ownership stake. BankBoston sold its servicing operation to HomeSide in 1995. But it seems highly unlikely that NationsBank would look to sell servicing to HomeSide.
Gerard Cassidy, an analyst with Tucker Anthony, said NationsBank has been beefing up its mortgage unit in the last few years through acquisitions of other banks and large servicing portfolios.
One analyst said sale of HomeSide to NationsBank would be no surprise. Thomas H. Lee of the venture capital firm by his name is a renowned leveraged buyout specialist, this analyst pointed out; Mr. Lee bought Snapple Beverage in the early 1990s, brought it public, and then made a huge profit by selling it to Quaker Oats.
Leveraged buyout firms "have never been morally opposed to being taken out at a premium," the analyst said.
Mr. Cassidy said NationsBank probably would not be a passive investor in HomeSide, because HomeSide is a major competitor of its NationsBanc Mortgage unit.
According to HomeSide's prospectus, HomeSide and Barnett have an agreement under which HomeSide has the exclusive right to acquire and service all loans originated by Barnett for five years. HomeSide has a similar agreement with BankBoston.
Joe K. Pickett, HomeSide's chief executive officer, said HomeSide and NationsBank have not met to discuss future loan originations from Barnett.
But Mr. Cassidy said that if NationsBank doesn't buy HomeSide, the two companies probably would break the Barnett contract.
Mr. Cassidy said that if this were to occur, HomeSide would lose about 10% of its origination volume, or $2 billion. But NationsBank would probably pay a breakup charge in the range of "multiple seven figures" to HomeSide, he said.