Matchmaking
Now that Ameriquest Mortgage Co. is said to be on the auction block, observers are speculating about who the likely buyers are.
Not surprisingly, one analyst said Wall Street firms - which have been the main consolidators of subprime lenders lately - are probable suitors. But an investment banker called private-equity firms a logical fit, and another analyst predicted a less obvious group would make bids: the French.
On Monday, Dow Jones reported that ACC Capital Holdings Corp., of Orange, Calif., has hired JPMorgan Chase & Co. to advise it on a potential a sale of Ameriquest, the main retail unit, which lends directly to consumers from call centers. The article did not mention ACC Capital's wholesale lending arm, Argent Mortgage Co. LLC, or its servicing unit, AMC Mortgage Services Inc.
But Matthew Howlett, an analyst at Fox-Pitt, Kelton Inc., said he expects Argent to be sold together with Ameriquest. "Argent has been on the block for a while," Mr. Howlett said. "The whole thing's going to go - the entire company." ACC declined to comment.
Among the likely suitors, Mr. Howlett said, are BNP Paribas and Societe Generale Group, both of Paris.
"The two French banks come immediately to mind because they are in need of a servicer and an originator," he said, because both have expanded their mortgage- and asset-backed securities operations, the main impetus behind Wall Street's appetite for mortgage originators. "We think the subprime lending landscape will look completely different 12 months from now."
Societe Generale declined to comment. Attempts to reach BNP Paribas for comment were unsuccessful.
Ameriquest would be "in the category of a forced sale" because of its problems, Mr. Howlett said.
According to securities filings, in the first half Ameriquest and ACC's other retail units originated $5.2 billion - or 18% of the total for all of last year. Second-quarter retail originations plunged 51% from the first quarter, to $1.7 billion.
Argent originated $12.2 billion of loans in the first half - or 26% of its total for all of last year. Second-quarter originations in the unit fell 1.3% from the first quarter, to $6.1 billion.
Hard to Judge
It is difficult to gauge how much ACC Capital is making on this lower volume, because the privately held company does not disclose earnings. In June, the Los Angeles Times, citing copies it had obtained of audited financial statements, reported that the company's profit fell 81% last year, to $257 million.
In May, Ameriquest closed its 229 retail branches and cut 3,800 jobs, leaving only call centers in the retail channel. It agreed in January to pay $325 million to settle allegations of predatory practices.
Christopher Brendler, a managing director at Stifel, Nicolaus & Co. Inc., said Goldman Sachs Group Inc. is one of the likely buyers among investment banks because it is interested in vertical integration and has not purchased a lender. (It did, however, reveal this year that it had a minority stake in LownHome Financial Holdings LLC, a whole lending start-up in San Jose.)
But he did not rule out Wall Street players that have already made deals, including Merrill Lynch & Co., which is buying National City Corp.'s First Franklin Financial Corp. for $1.3 billion, and Morgan Stanley, which has agreed to buy Saxon Capital Inc. for $706 million.
"The deals they've done are small, and they're probably looking for more," Mr. Brendler said.
Goldman, Merrill, and Morgan Stanley declined to comment.
"The news that Ameriquest has hired an investment banker has garnered more interest," Mr. Brendler said. "But I think everyone in the subprime business is probably for sale at a price."
Brenda White, a managing director at Deloitte & Touche Corporate Finance LLC, said a private-equity firm might be interested in Ameriquest if it could be snapped up for a bargain.
"It's big and I don't think it's the kind of transaction that a commercial bank is going to step up and buy. It's viewed to have issues."
However, private-equity firms typically use significant debt to finance deals, and Ameriquest might be tough to leverage up if, like its publicly traded peers, the lender is suffering from forced loan buybacks and early-payment defaults.
"Their losses and liabilities obviously would have to be factored into the price," Ms. White said. "But I do believe there has to be some value in the company. It's just going to take time to realize the value."
Off Limits?
The California Association of Realtors is not happy that the conforming loan limit will not rise next year.
Because the maximum size of a loan that Fannie Mae and Freddie Mac can buy or guarantee will stay at $417,000, the cost of financing a home will remain "prohibitive" for most Californians, who will be forced to get jumbo or nonconforming loans that typically carry higher interest rates, the trade group said Tuesday.
Just 24% of Californians can afford an entry-level home, and the median price of a home in California rose 2% in the third quarter to $548,680, far exceeding the conforming loan limit, the group said.
Of course, Office of Federal Housing Enterprise Oversight, which regulates the two government-sponsored enterprises and sets the limit annually, had limited options. By law, it must recalculate the cap according to the change in October from a year earlier in the average home price tracked by the Federal Finance Housing Board. This year that price fell. OFHEO said Tuesday that it would hold rather than lower the limit to avoid market disruptions.
The National Association of Realtors has been pushing for a provision in the House GSE bill that would let OFHEO raise loan limits in "high-cost" areas by 50%, or to the level of the area's median home price, whichever was less.
