Webster Financial Corp.'s efforts to shed its thrift image have pushed the Connecticut company further into asset-based lending.
Though riskier than straight mortgage lending - the business does not use real estate or cash flow as collateral - asset-based lending is a natural step for thrifts trying to diversify into commercial lending.
Webster underscored its commitment to diversification Monday by announcing that it would acquire the asset-based lending division of New York's IBJ Whitehall Business Credit Corp. The deal would quintuple Webster's asset-based portfolio.
Thrifts nationwide are slowly increasing their commercial and industrial lending portfolios, which are where asset-based loans are held. Laurie Hunsicker, an analyst at Friedman, Billings, Ramsey, said commercial and industrial lending is a very desirable place for thrifts to be - if they have the expertise.
"In this interest rate environment it's harder to be locking down your residential business," she said. "It makes sense to try to diversify if you've got the platform to do it - and Webster has been exceedingly successful at that."
Competitors such as Philadelphia-based Sovereign Bancorp Inc. and Cleveland-based Charter One Financial also have asset-based lending capabilities. Those two companies have also been working to expand beyond residential mortgage lending.
"When we see asset-backed lending it tends to be companies that are making an effort to shift their business model from a traditional thrift to that of a commercial bank, and Webster certainly falls into that category," said James Ackor, an analyst at Royal Bank of Canada's RBC Capital Markets.
The deal would add $515 million in loans to Webster's $130 million asset-based lending portfolio. The unit, a subsidiary of Industrial Bank of Japan Trust Co., would operate as Whitehall Business Credit Corp. and keep its 55 employees.
Joseph Savage, the head of Webster's business banking unit, which includes asset-based, commercial real estate, and specialized lending, said the acquisition would enable Webster to further diversify its earnings and build on its existing business. The company expects asset-based lending to make up about 1% of earnings this year, he said.
"This is all about growing our revenues," Mr. Savage said. "We think we have expertise in the area and want to leverage that."
Webster, based in a relatively slow-growth state, is also trying to diversify beyond its core markets. About 65% of IBJ's portfolio consists of East Coast customers and is spread among retail, manufacturing, and services industries, the company said. The portfolio would include only the fully performing loans at closing, which is expected in the third quarter.
The acquisition would increase Webster's commercial loan portfolio 30%, to about $2.6 billion, the company said. It would also add $21 million of deposits and cash management accounts to Webster and expand its geographic reach.
Webster did not disclose the deal price, but Mr. Savage said it was "attractive." Analysts said Webster is probably paying less than par for the business, which its Japanese parent is said to have shopped around.
"It's a significant piece of business," said Christopher Buonafede, an analyst at Fox-Pitt, Kelton. Though asset-based lending is generally considered riskier than some other types of lending, the fact that Webster is also taking IBJ's bankers and is not just buying its portfolio is important, Mr. Buonafede said. "They're bringing the talent with them, so it's not like they're just taking the portfolio and plopping it into their own," he said.
Thrifts have been quick to diversify revenues in recent years, and many are moving to become more bank-like. Thrifts are historically more rate-sensitive than banks and have lower stock prices, so many are also looking to expand their commercial business, analysts say.
Webster began its transition several years ago, buying insurance, financial advisory, and leasing companies. In 2000 it acquired three insurance agencies and the financial advisory firm Duff & Phelps. Last year it bought the Wolff-Zackin insurance agency and Center Capital Corp., an equipment financing company.
James C. Smith, Webster's chairman and chief executive, said buying IBJ Whitehall will speed Webster's transformation into a diversified provider with a commercial bank profile.
RBC's Mr. Ackor said, "Webster is just looking for opportunities - wherever they might be - to be able to build upon some of their core capabilities."
