Magazine article American Banker

Ownit Said to Have Sought a Bailout from Merrill Lynch

Magazine article American Banker

Ownit Said to Have Sought a Bailout from Merrill Lynch

Article excerpt

Merrill Lynch & Co. rebuffed a request by executives at Ownit Holdings LLC for a capital infusion that would have kept the subprime lender afloat, people close to both companies said.

The investment bank had helped finance Ownit's rapid expansion. With Merrill's help, Ownit became one of the fastest-growing subprime lenders last year, and was on pace to originate $10 billion to $12 billion this year, up from $800 million in 2003.

Ownit's sudden closure on Dec. 5 surprised industry observers and underscored the pain subprime lenders are feeling as a result of forced loan buybacks related to early payment defaults. Details of Merrill's role in the shutdown have trickled out in the aftermath.

Merrill, which held a 20% stake in Ownit, opted not to rescue the Agoura Hills, Calif., lender after hitting the firm with a Dec. 1 margin call that required it to pay $25 million in cash, the sources said. The margin call was necessitated by Merrill's markdown to face value of about $1 billion of loans on Ownit's warehouse line.

Exactly why Merrill chose the course it did is unclear.

Bill Haldin, a Merrill Lynch spokesman, said: "We had a small minority stake in Ownit and, while it is unfortunate that Ownit closed its doors, we met every contractual obligation we had to them." He would not say how much Merrill paid when it bought its stake in 2005.

Ownit aside, Merrill Lynch continues actively to increase its bet in the subprime space. It agreed in September to buy First Franklin Financial Corp. …

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