The New York private-equity firm MatlinPatterson Global Advisors LLC has come to the rescue of another ailing mortgage lender, and this time it is one with a deposit base.
The firm that earlier this year rescued the jumbo lender Thornburg Mortgage from the brink of bankruptcy this week pledged to invest $250 million in Flagstar Bancorp Inc., a Troy, Mich., thrift company that lost $56.9 million last quarter, mostly on bad mortgage loans.
The deal's completion hinges on Flagstar's receiving an additional $250 million from the Treasury Department's Troubled Asset Relief Program.
The investment could go a long way toward helping both Flagstar and Thornburg get through the mortgage crisis. Thornburg stopped originating mortgages earlier this year because its funding sources dried up, and MatlinPatterson's deal with Flagstar could give the mortgage firm access to Flagstar's deposits.
Mark Hammond, Flagstar's vice chairman, chief executive, and president, would not address that possibility directly, but said in an interview Thursday that "there is going to be a lot of opportunity for institutions with good capital and good funding sources to work with those that are lacking those things."
"Clearly if you got majority owners of two institutions, those opportunities can easily present themselves," Mr. Hammond said.
He also said the investment could help Flagstar secure funding from the Treasury program.
The $14.2 billion-asset company has been waiting seven weeks for a response to its application, and with no word from the Treasury, its investors were getting nervous. Its stock fell below $1 on Nov. 11, and this week the company was warned by the New York Stock Exchange that its shares were in danger of being delisted.
"We felt the chance of receiving Tarp would be better if we had a similar amount in private equity," Mr. Hammond said. Regulators "made it very clear" that getting private equity would only help its chances of getting Tarp money, he said.
MatlinPatterson officials did not return a call to American Banker, but in a news release, chief executive David Matlin said the firm was drawn to Flagstar because its "leading mortgage origination platform and quality balance sheet present an exciting investment opportunity for us."
"We are pleased to be partnering with this caliber of management team and look forward to working together and building upon Flagstar's unique franchise," Mr. Matlin said.
MatlinPatterson invested $1.35 billion in Thornburg this year. Once a leading lender of jumbo mortgages, Thornburg been hobbled by liquidity issues and it has been forced to take writedowns on its investments in mortgage securities.
Thornburg has made no secret of its need for a more reliable source of financing.
This month its president and CEO, Larry Goldstone, told National Mortgage News, a sister publication to American Banker, that it had "four to five" months to replace a repurchase agreement it has with five lenders. Those lenders have agreed to hold off on margin calls against the company through mid-March, Thornburg said last week.
MatlinPatterson would acquire 312.5 million Flagstar shares through an affiliated fund at 80 cents each, a 33% premium over Flagstar's closing price Wednesday.
The agreement also calls for Flagstar chairman Thomas Hammond and Mark Hammond to invest $2 million each in the company. Other senior executives may also invest up to $1 million, Flagstar said.
If conditions are met, MatlinPatterson will gain 70% controlling interest and the right to appoint more than the majority of Flagstar's board.
Terry McEvoy, an analyst at Oppenheimer & Co. Inc., said it makes sense that the government would require Flagstar to round up private-sector funding. Mr. McEvoy said that Flagstar's double-whammy of being headquartered in Michigan and having a loan portfolio dominated by mortgages made the company a riskier bet.
At Sept. 30, 3.87% of Flagstar's loans were nonperforming, versus 1.34% a year earlier.
"I think it was a smart move" for the Treasury to pressure Flagstar to raise capital, Mr. McEvoy said. "It is a good example of how the government capital is expected to lead to private capital. In Flagstar's case, it is happening at the same time."
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Corrected December 22, 2008 at 8:55PM: Clarification: An earlier version of this story should have made it clear that MatlinPatterson Global Advisors was the lead investor in a group that invested $1.35 billion in Thornburg Mortgage this year, not the sole investor.