Magazine article American Banker

Down Market Makes It Tough to Pin a Value on Mortgage Assets

Magazine article American Banker

Down Market Makes It Tough to Pin a Value on Mortgage Assets

Article excerpt

What is a mortgage bank worth?

That question - central to the expansion plans of many commercial banks - moved into the limelight this week as Fleet Financial Group hit a snag in buying back the publicly held shares of its mortgage unit.

Two independent directors of Fleet Mortgage Group balked at the plan, saying the offer of $20 per share was too low. They said the company is worth as much as $26 a share, based on an evaluation they commissioned from Morgan Stanley & Co.

The sharply differing opinions underscore the difficulty of putting a price on a company that specializes in an inherently boom-or-bust business. Many banks have grappling with this pricing issue as they consider whether to join the trend of acquiring mortgage banking companies.

In Fleet's case, the Providence, R.I., company wants to buy back the 19% of Fleet Mortgage's stock that it does not already own.

It based its bid partly on an evaluation by Salomon Brothers Inc. that held the mortgage unit to be worth between $16.50 and $19.50 a share. Montgomery Securities also weighed in with an opinion that supported the offer.

One central area of dispute is the value of Fleet Mortgage's originations network. While Salomon used the most recent three months as a measure of originations, Morgan maintained that the industry is at a cyclical low and that the most recent three months of production are thus not a fair indication of value.

Home lending by mortgage banks has been sinking since the first quarter of 1994, driven down by rising rates and stiff competition from portfolio lenders. …

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