KeyCorp is close to an agreement to purchase subprime lender Champion Mortgage, market sources say.

The Cleveland banking company has been negotiating with Champion for several weeks-and Champion recently rejected other potential acquirers' bids, sources close to both companies said.

If it makes the purchase, KeyCorp will be making good on a promise by Jay Meyerson, the head of its finance unit, to beef up the division by making acquisitions.

Champion, based in Parsippany, N.J., is known for commercials featuring founder Joseph Goryeb, who advises viewers: "When your bank says no, Champion says yes." It originated more than $500 million of loans in 1996 and is estimated to be worth $150 million to $200 million.

Neither Champion nor KeyCorp would comment on the reported merger talks. On Wednesday, Champion applied to withdraw its registration for an initial public offering, leading some to conclude that a deal was close.

A deal would underscore KeyCorp's commitment to a business that other major banks have shunned lately. BankAmerica Corp. and Fleet Financial Corp., among others, have put their subprime lending divisions on the block this year.

Earlier this year, Mr. Meyerson indicated that he expected prices to fall in the subprime sector following the meltdown of Mercury Finance Co., and said his bank would become a buyer when the price was right.

Subprime lenders have experienced a sectorwide stock slide in recent months, with many companies losing more than half their value in that time. Indeed, Champion cited market conditions as the reason for withdrawing its initial public offering.

Analysts have speculated that Champion never intended to become public, and was just trying to solicit buyers.

KeyCorp's commitment to subprime lending will allow it to "dominate the market," especially as competitors shy away from the sector, Mr. Meyerson said during the February interview.

KeyCorp was criticized for overpaying when it shelled out $300 million to acquire Auto Finance Group, a subprime car lender in late 1995. But analysts now concede that the bank has eked out respectable profits from the division.

"Their strategy has been to buy expertise and then provide increased distribution capability," said Ben Crabtree, an analyst with Dain Bosworth.

For its part, family run Champion is looking to "go to the next level," said Merrill Ross, an analyst with Freedman, Billings, Ramsey. An affiliation with KeyCorp could give Champion financing to open new branches, as well as referral business, she said.

Banks' fear of subprime lending may well be unfounded, Ms. Ross added. "These are future clients of banks, not past clients-you don't want to turn them away," she said. "These are people with impaired credit, but it doesn't mean they will be five years from now."

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