Six weeks ago CityBank of Lynnwood, Wash., was telling investors it planned to build Diligenz Inc. into the nation's premier provider of Uniform Commercial Code-related services.
But the bank has abruptly changed course. It announced Wednesday that it is selling the subsidiary to Corporation Service Co. of Wilmington, Del., for $35 million.
CityBank said that after subtracting taxes and the share owed to minority investors in Diligenz, it would net $28 million from the sale (it did not say when the deal is expected to close).
When it was acquired by CityBank in 1998, Diligenz was still just a budding outfit. In the ensuing two and a half years the bank invested about $10 million in the venture and made it a leading UCC services provider.
Stephen Butler, Corporation Service's director of marketing, called Diligenz "a formidable competitor with a very solid solution."
James Bradshaw, an analyst for D.A. Davidson & Co. in Portland, Ore., said the deal surprised him. CityBank had given no indication it was seeking to sell Diligenz, he said.
"I presume that getting an offer of that size is what precipitated this," Mr. Bradshaw said.
UCC service providers help lenders file liens and research property offered to them as collateral. The Diligenz client list features some of the nation's largest banks and finance companies, including Citigroup Inc., PNC Financial Services Group Inc., and M&T Bank Corp.
Diligenz has been a big contributor of noninterest income for CityBank, generating $17.7 million of revenue last year and $13 million in 2003. This year is shaping up to be the biggest year yet for the subsidiary, which reported first-half revenue of $10 million.
Mr. Bradshaw said that Diligenz has been a "phenomenal investment." But he said CityBank is already overcapitalized and that with the money from the sale its equity-to-assets ratio would top 25%.
CityBank president Conrad Hanson said it has made no decision on how to deploy the additional capital.
He added that despite its high ratios, CityBank has always generated above-average returns.
Corporation Service is already a large UCC services provider, so the deal will be subject to antitrust review, CityBank said. But Mr. Hanson said he expects no difficulties with the review.
