Magazine article American Banker

Warehouse Deal with Citi Wins Points for Colonial

Magazine article American Banker

Warehouse Deal with Citi Wins Points for Colonial

Article excerpt

An off-balance-sheet arrangement in its mortgage business could improve Colonial BancGroup Inc.'s net interest margin and lead to better-quality earnings in the long term, analysts said.

The Montgomery, Ala., company announced late Friday that it plans to securitize and sell loans from its mortgage warehouse into a newly formed subsidiary, MWL Funding Inc.

Under an agreement with Citigroup Inc., Colonial could sell up to $1 billion in mortgage warehouse loans to Citi. The warehouse totaled around $1 billion on Dec. 31, so the arrangement would enable Colonial to move it all off its balance sheet.

Analysts view the deal as a positive for the company.

Kevin Fitzsimmons of Sandler O'Neill & Partners LP said the arrangement gives Colonial the opportunity to free up capital it can put to other uses, including commercial lending in faster-growing markets and for funding acquisitions.

In a telephone interview Monday he said the new off-balance-sheet arrangement could lower Colonial's funding costs by eliminating some of the higher-cost funding that supported the mortgage warehouse loans. Combined with a mostly variable-rate commercial loan book, the move could help Colonial expand or at least maintain a stable net interest margin, he said.

Mr. Fitzsimmons raised his target price on Colonial's shares by 50 cents, to $22, but maintained his "hold" rating on them.

David Honold, an analyst with Keefe, Bruyette & Woods Inc., also likes the strategy. He reiterated his "outperform" rating and his target price of $24. He wrote in a note published Monday that removing the warehouse from the balance sheet could expand Colonial's net interest margin by 10 or 12 basis points -- about 3% -- this year. …

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