Magazine article American Banker

Companies on the Block Advised: Act Fast, Keep Troops Informed

Magazine article American Banker

Companies on the Block Advised: Act Fast, Keep Troops Informed

Article excerpt

With the market ripe for further consolidation, merger and acquisition experts are warning that internal upheavals derail more sales of mortgage companies than market conditions do.

Protracted negotiations produce employee defections and fuel talk by rivals that the company isn't paying attention to business, according to Richard J. Melnick, a partner with the Rockville, Md., law firm of Shulman, Rogers, Gandal, Pordy & Ecker.

"Your business will suffer; you must plan for that," Mr. Melnick said. Analysts are warning lenders to beware as the industry approaches a new year and many more mortgage deals. "Overcapacity, predatory pricing, and further compressions of margins" are driving companies to seek merger partners, Mr. Melnick said.

Mr. Melnick and other industry analysts offered their views to mortgage bankers from large and small companies at a well-attended panel discussion during a recent conference of the Mortgage Bankers Association of America.

Purchases of smaller companies and servicing rights, while not garnering many headlines, will proliferate, Mr. Melnick said.

Larger deals - including Chase Manhattan Bank's purchase last year of American Residential Mortgage Corp., and the pending sale of the home mortgage business of Prudential Insurance Co. of America - serve as highly visible mileposts in the pricing derby, analysts said.

But the industry will see fewer high-end deals that place a premium of 150 basis points or more on servicing, the analysts said.

Servicing rights, which have carried premiums, are now headed back to earth, said Hilary Renz, senior vice president of Cohane Rafferty Securities, a Harrison, N. …

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