Magazine article American Banker

Price Tag Could Top $1B in Mellon's Sale of Mortgage Division

Magazine article American Banker

Price Tag Could Top $1B in Mellon's Sale of Mortgage Division

Article excerpt


Mellon Bank Corp.'s mortgage division, which was put on the block last week, is expected to fetch more than $1 billion as the giant loan servicers - and maybe some midsize players - skirmish for market position.

Mellon Mortgage, based in Houston, originated $6.2 billion of loans in the first eight months of 1998 and has a $73.5 billion servicing portfolio. The unit's rank among mortgage servicers and originators slipped in recent years as other big banks made acquisitions.

"The selling price could be pretty significant, maybe 150 to 200 basis points," said George Bicher, an analyst at BT Alex. Brown. That would mean a price tag of $1.1 billion to $1.5 billion.

The size of the deal will not discourage buyers, observers said: Size is one of the unit's attractions. "There is appetite," said Brenda White, managing director at Warburg Dillon Read LLC. "The deal will get done."

The most likely suitors would be "the usual suspects, the megaplayers," Ms. White said.

Chase Manhattan Mortgage, Bank of America Corp., Norwest Corp. and Countrywide Home Lending are the leading servicers in the country, each with more than $200 billion in servicing.

Ms. White said a major player below the top tier could acquire the business and catapult its servicing portfolio above $100 billion.

HomeSide Lending's acquisition of Bank One's mortgage servicing portfolio last April vaulted it above the $100 billion mark, making it the No. 6 servicer as of September. "It's possible we could see a surprise entrant like we did with HomeSide," Ms. White said, though she added it was "more likely it will be one of the megaplayers."

"It's a volatile industry and, frankly, they're selling at a good time," said ABN Amro's senior bank analyst James M. Schultz.

Mellon's decision to sell the unit is part of the Pittsburgh banking company's strategy of focusing on fee income businesses such as trust and mutual funds. …

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