LaSalle National Bank is plunging back into the mortgage securities business. The Chicago bank's broker-dealer division is stockpiling inventory and hiring traders to get the effort off the ground.
LaSalle wants to recapture its standing as a leading wholesaler, said Gary Peters, a senior vice president who runs the broker-dealer's trading operation in Boca Raton, Fla. During the early 1990s, the unit was selling as much as $6 billion of mortgage-backed products a year, he said. But it left the business in 1994 as demand plunged.
As a wholesaler, LaSalle buys blocks of securities from conduits such as Fannie Mae and Residential Funding Corp. and sells them to regional brokerage houses like Raymond James Financial, St. Petersburg, Fla., and Edward D. Jones & Co., St. Louis. The brokers then sell the securities to individual investors as an alternative to mutual funds and stocks, Mr. Peters said.
The Chicago bank, a unit of ABN Amro Holding, Amsterdam, expects to capitalize on the reemergence of the mortgage securities market. "Business is on the upswing," Mr. Peters said. "There's much more activity than there's been in the last couple of years."
He said the LaSalle unit withdrew from the market in 1994 because, "basically, nothing was going on." The unit was downsized and turned to crafting "callable" certificates of deposit - investments that offered higher rates in exchange for the chance the paper would be called before maturity.
LaSalle plans to continue the CD business, which has had about $1 billion of sales since its inception, while bulking up its broker-dealer operation. "It's time to reestablish ourselves," Mr. Peters said. "We're going to be ready to be in the business in a very big way."
The mortgage securities industry dodged a bullet last week when a controversial proposal to change the accounting rules for certain trading practices was scuttled.
At issue was the status of dollar rolls, which traders use to expand their inventories by borrowing securities from some investors in order to sell them to others.
The Financial Accounting Standards Board wanted to change the structure of dollar rolls so that investors would be taxed each time they participated in a transaction.
Industry representatives said the move would have severely affected the market's liquidity because investors, rather than face taxes, would simply stop lending securities to traders.
In a squeaker, the board vetoed, 4 to 3, a staff recommendation that dollar rolls be considered sales, subject to taxes, rather than financings, which are not.
The vote came after a comment period in which heavy hitters, including Freddie Mac and the Public Securities Association, had lined up against the proposal.
The measure would have reduced the market's liquidity, creating greater volatility and higher transaction costs for investors, wrote Gregory E. Reynolds, Freddie Mac's vice president for corporate accounting. The increased cost "will be passed through to homeowners as higher mortgage rates," he said.
Representatives of the PSA said the mortgage market, as it currently operates with dollar rolls, is stable and carries relatively low interest rates.
The market reacted quickly to word that the dollar roll proposal had been shot down. Inventories of mortgage securities that investors would not release before the vote were readily available afterward, a trader said.