Magazine article American Banker

Why Guaranty's Branches Didn't Go to High Bidder

Magazine article American Banker

Why Guaranty's Branches Didn't Go to High Bidder

Article excerpt

When a property is put on the block, the highest bid usually prevails. But a recent deal for 41 retail production offices is a reminder that other considerations can count.

New York Mortgage Trust Inc.'s $1.31 million offer for the branches of Guaranty Residential Lending Inc. was not the highest, officials on both sides said.

"Most bidders, to my knowledge, bid substantially higher than we did," said Steven Schnall, New York Mortgage's chairman and co-chief executive.

So why would Guaranty Residential, a unit of Temple-Inland Inc., leave $4.69 million on the table? According to both sides, the salespeople preferred to work for New York Mortgage.

"In this case, the health and happiness of the sales force was a factor that went into decision," said Jeff Babcock, a partner in the Ross, Calif., office of Strategic Mortgage Finance Group Inc., which represented Guaranty Residential.

"The field management played a big part in looking at what those options were for them," Mr. Babcock said. A regional vice president "took an active part in the dealmaking."

Guaranty's concern for its employees' wishes was not entirely altruistic. According to Mr. Schnall, if the acquired employees originate $2 billion of loans or more during the first 12 months after the deal closes, New York Mortgage is to pay an additional $250,000.

Mr. Babcock said that almost all mortgage company deals supplement the up-front payment with an earnout. "The seller has a stake in the buyer doing well."

Temple-Inland is largely exiting the mortgage business. In August it said it would sell its servicing portfolio, shutter or sell its retail mortgage origination offices, and focus on originating loans through its Guaranty Bank.

Most of the 15 full-service and 26 satellite offices being sold are in New York and surrounding states: Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, Pennsylvania, Rhode Island, and Virginia. …

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