Home Equity: Megadeal Would Bring B of A Back into Subprime

Monday's merger deal between NationsBank Corp. and BankAmerica Corp. would pair banks from opposite coasts that have taken contrasting approaches to customers with tarnished credit.

While NationsBank, based in Charlotte N.C., has touted its consumer finance as one of its most profitable businesses, San Francisco-based BankAmerica has spent the past few years distancing itself from subprime lending.

As the merger was being announced, BankAmerica was shedding its last link to subprime consumer finance, saying it had a deal to sell its manufactured-housing division to GreenPoint Financial Corp.

"It's not a business we have any strength in, or any particular appetite for," said chief financial officer Michael O'Neill when BankAmerica put the unit on the block in October. "We as a company feel better about the prime-customer base."

A NationsBank spokesman said it is too soon to say exactly how the companies would bridge the gap. But officials of the bank's de novo manufactured-housing division is predicting business as usual.

"We've already put a strategic plan in place," said Jed Gleim, executive vice president for the unit. "There's no reason to change that."

The unit expects to make loans through both NationsBank and BankAmerica branches, Mr. Gleim said.

The banking industry is split over the subprime sector, said to include about 25% of the adults in the United States.

NationsBank, Norwest Corp., First Union Corp. and others have successfully catered to the credit-scarred population by acquiring subprime specialists or starting new ones. Others, including Fleet and BankAmerica, have been badly burned by loans that didn't perform, and they have gotten out.

BankAmerica's troubles in subprime date to its 1992 acquisition of Security Pacific Corp., which included manufactured-housing and finance divisions. BankAmerica experienced defections by high-level management at both before deciding to sell.

NationsBank Consumer Finance Group, with 450 branches and $30 billion in managed assets, is the largest bank-owned consumer finance company in the country. NationsBank's purchase of Barnett in January, completed in January, gives Nations the ability "to be the best this industry has ever seen," Douglas K. Freeman, head of the new consumer finance group, said in November.

Barnett's commitment to the subprime business was cemented when the bank bought Equicredit in 1995. Since then, the 150 branch home equity lender has been a significant contributor to Barnett's income.

Following the Barnett/NationsBank merger, NationsBank's consumer finance units include: NationsBank Dealer Financial Services, which markets to auto dealers; Oxford Resources, an auto lessor; NationsCredit Consumer Corp., which includes Barnett's home equity lender EquiCredit Corp., and NationsCredit Manufactured Housing Corp., a start-up unit founded by Barnett.

Some analysts predicted the combined company would continue to pursue the business and that the merger would simply mean more marketing clout for NationsBank's units.

"Consumer finance works well for NationsBank. I don't see them exiting the business," said Kate Bletcher of Gruntal Securities.

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