E-Trade Bank, which is trying to expand its home- and car-loan-focused consumer finance business to the luxury sector, has agreed to buy Ganis Credit Corp. from Deutsche Bank AG for $101 million.
Ganis Credit, of Newport Beach, Calif., provides financing for buyers of recreational vehicles, motorboats, and yachts.
E-Trade Bank, a subsidiary of E-Trade Group Inc., would gain Ganis' origination and servicing platforms as well as its $1.7 billion consumer loan portfolio, and the purchase would diversify the risk exposure in its $14 billion portfolio by nearly doubling its consumer finance portfolio, to $3.6 billion. Its mortgage portfolio is $9.2 billion.
Arlen Gelbard, the chief banking officer of E-Trade Group, Menlo Park, Calif., and the president of E-Trade Bank, said the purchase would be a "natural extension" of the two-year-old bank's consumer lending business. He noted that Ganis borrowers' credit score from Fair, Isaac & Co. averages 731.
"We have said consistently that we are maintaining a laser-like focus on credit quality," Mr. Gelbard said in an interview Tuesday, the day the deal was announced. "The credit quality of Ganis customers is playing into our sweet spot of customers and borrowers we are trying to develop."
Moreover, Mr. Gelbard said, these high-end, high-credit-quality borrowers represent cross-selling opportunities for E-Trade.
"It matters less whether you are financing a home or Rolls-Royce and more about what kind of person you are lending to," he said. "The vast majority of our customers do not go out and buy motor homes and yachts, but many of them could if they chose to."
Ganis' origination technology, Mr. Gelbard added, could be used by E-Trade's automobile-loan business as well.
E-Trade plans to finance the purchase, which is expected to close by yearend or in early 2003, with cash raised by selling mortgages held in its portfolio.
Dave Marsh, an analyst with Friedman, Billings, Ramsey & Co., said that buying Ganis would help E-Trade to increase net interest margins on its loan portfolio by as much as 20 basis points.
But Mr. Marsh said there is an element of risk to the purchase: E-Trade would also assume Ganis' portfolio of servicing rights on $3.5 billion of consumer loans.
The servicing of consumer loans is an area in which E-Trade, best known as an online brokerage, has had little experience, he said.
For Deutsche Bank, the deal is the latest in a string of moves to divest itself of noncore assets. Earlier this month it sold its global securities servicing business to State Street Corp. for $1.5 billion.
