Friedman, Billings, Ramsey Group, Inc. is the latest company to begin extricating itself from subprime.
Yesterday the investment bank announced a $75 million recapitalization deal with Sun Capital Partners, which will invest $60 million in Friedman’s lending unit, First NLC Financial Services. Friedman will invest $15 million.
The deal will limit Friedman’s future exposure to FNLC to its $15 million investment, plus $3 million in indemnification to Sun Capital for “certain potential liabilities.”
Here’s a clip from the release:
“During the third quarter, FBR Group expects to fund approximately $15 million in losses associated with further restructuring and operating costs incurred prior to entering into the transaction with Sun Capital. FBR Group will also retain ownership of approximately $250 million of conforming and non- conforming mortgages recently originated by FNLC which are expected to be sold or securitized during the third quarter.”
Friedman just reported a $10.7 million gain in the second quarter vs. a loss of $30.2 million a year ago.
Meanwhile, Reuters did a story on efforts by GE to sell lending unit WMC and CIT Group to sell its lending operation. Here’s a clip:
A new round of subprime assets are up for sale, and even blue-chip conglomerate General Electric Co. likely will lose money as the market for risky mortgages deteriorates at a rapid clip.
Analysts say GE and CIT Group Inc. probably will get far less for their respective subprime franchises than those sold less than a year ago. The value of subprime assets have tanked amid a rising wave of delinquencies and defaults on loans to people with weak credit.
In contrast, Cleveland, Ohio’s National City Corp. looks pretty smart for locking up a deal for its First Franklin Financial subprime franchise. Merrill Lynch & Co. Inc. agreed in September to pay $1.3 billion for First Franklin.
Meanwhile, General Electric and CIT Group Inc. get poor marks for waiting too long.
GE, however, is scoring points among some analysts and investors for getting out of subprime rather than trying to revitalize its WMC Mortgage Corp. Any fallout from WMC is just a blip on the industrial behemoth’s balance sheet.
“We appreciate GE saying ‘enough is enough’ on WMC,” A.G. Edwards analyst Chris Kotowicz said in a research note.
Since the First Franklin deal was announced, soured subprime mortgages helped to buckle two hedge funds at Bear Stearns Cos. while roiling the U.S. housing market and other corners of the American economy.
And there’s more to come as rating agencies and investors come to grips with how much the standards were lowered on loans to people with weak credit.
“In our view, the decision to cut and eventually run in home lending represents a severe blow to CIT’s long-stated consumer expansion strategy,” analysts at independent research firm CreditSights Inc. said. “We imagine it is some consolation that GE Capital has also decided to throw in the towel on mortgages, but we would note that (GE) already dramatically scaled down its franchise.”
