Aames Financial Corp. may be the next subprime lender to join the consolidation craze, and observers say NationsBank Corp. is a leading contender to buy it.
Analysts estimated the Los Angeles-based home equity loan specialist, which originated $616 million of loans in the second quarter, could fetch $350 million to $500 million.
NationsBank has been hunting seriously for a subprime acquisition in recent months and has reviewed Aames' books, investment bankers said. The Charlotte, N.C.-based banking company bid on another subprime lender, Walsh Securities, before Resource Bancshares Mortgage Group agreed to buy it in April, one banker said.
NationsBank officials could not be reached for comment, and Aames chief financial officer Greg Witherspoon said that it is company policy to not comment on market speculation.
Subprime lenders, which cater to customers who cannot get loans from banks, have been prime takeover targets since the sector slumped following high-profile blowups of several auto lenders in January.
Aames, which makes loans through more than 80 offices nationwide, has been one of the hardest hit. Its stock, valued at $32.375 on March 10, hit a low of $10.75 on May 6.
Shares were up $1.875 to $18.50 Wednesday, lifted by persistent merger rumors. Speculation heated up after longtime chief executive Gary Judis, who favored keeping the company independent, was replaced by Cary Thompson, a former investment banker, in May.
HFS Inc. and Washington Mutual Inc. are also said to have considered a deal for the lender.
"There are a couple of companies that are looking to purchase Aames," said Aparna Bhardwaj, analyst with Feshbach Brothers, San Francisco. "They think that by taking it over, they can use Aames' excellent distribution channel to get deeper into the market."
Feshbach Brothers initiated coverage of Aames with a "buy" rating on May 14.
Analysts have pointed to NationsBank, whose shares slipped 87.5 cents $67.75 Wednesday, as the most logical acquirer, in part because the two companies have worked closely with Aames in the past. NationsBank was administrative agent for a $350 million revolving loan to Aames in January.
In addition, NationsBank has been snapping up subprime loan pools in recent months, and holding them on portfolio, said an executive from a subprime auto lender.
Some observers were skeptical, however. Performance of the bank's own consumer business has been disappointing, some analysts said. And the company is also reportedly shopping a subprime unit it acquired when it bought U.S. West Financial Services Inc. in 1993.
On May 8, former chief operating officer Cary Thompson replaced Mr. Judis. The move was billed as way for Mr. Judis to concentrate on broad company strategy, but analysts that cover the company said that he was being phased out of Aames management and is considering a political career.
Mr. Thompson joined Aames in late 1996 from Natwest Securities, where he served as the company's investment banker. Since Jan. 1, Mr. Judis has sold more than 300,000 shares of his stock, reducing his stake by 25%.
