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Best Performing Lenders

Goldman highest mortgage related entity

March 22, 2007


photo of Coco Salazar

One out of every 10 best-performing companies in the country are tied to the mortgage industry.

The companies were featured on the BusinessWeek 50, a ranking of the entities with the best average return on capital and sales growth over the previous three years.

The entities all parade on the Standard & Poor's 500-stock index. In each of the 10 economic sectors that make up the index, entities were ranked separately by returns and growth. The numerical rankings were combined, giving substantially greater weight to return on capital, to come up with the best company in each sector and then across all sectors.

"This year's list is chock full of companies that are rewriting the rules in their industries," the magazine said. "They are the agitators, the pioneers, and the game-changers that are leading the way in the 21st century."

The second-best mortgage-related entity on the BusinessWeek 50 was Lehman Brothers Holdings, which placed 23rd through its 3-year return on capital rate of 73 percent and sales growth rate of 40.6 percent. The mortgage-backed securities player and provider of financing for mortgage bankers was also the second-best performer in the financial sector. BusinessWeek noted that the investment bank, once known for its bond trading and internal warfare, is grabbing share in mergers advice and rapidly expanding its global reach.

"The new House of Lehman has deftly taken advantage of the huge demand for fixed-income securities from companies and traders, rolling out everything from securitized Japanese residential mortgages to student loans while beefing up its stable of bonds," the magazine said. "At the same time, it's hiring more bankers to gather strength for a deal offensive. The strategy is working. Lehman is a co-investor in the largest buyout ever, the bid for TXU, and was an underwriter for the first IPO of a hedge fund, Fortress Investment Group."

Morgan Stanley, which recently acquired subprime lender Saxon Capital Inc., followed at No. 39, making it the third best-performing mortgage-related and financial-sector company on the list. The investment banker, with a three-year return and growth rate of 32.3 percent and 30.1 percent, is "finally getting out of a business that never seemed to jibe with its white-shoe image -- the Discover credit card," and has been thriving -- with stock surging 43 percent --since former president John Mack returned to take charge as chief executive in June 2005, according to the publication.

Morgan Stanley's "traders are taking bigger risks and putting more of the bank's own money behind trades," the magazine added. "While brokers are focusing more on wealthy clients who want high-octane investments, the firm's asset management business is launching private equity funds and acquiring hedge funds or taking minority stakes in them."

Sales growth of 20.3 percent and total returns of 40 percent over the past 36 months earned Synovus Financial 49th place. BusinessWeek cited a double-digit rise in deposits and loans in its banking division as the source for the lender's growth.

"CEO Richard Anthony has been accelerating the company's expansion into commercial and industrial lending and bolstering its retail banking portfolio," the magazine said. "That includes an aggressive push into home-equity loans and, like its bigger banking brethren, a bid to soak up more income from ubiquitous fees."

PNC Financial Group managed to make the list at No. 50 through sales growth of 15.3 percent and 3-year rate of return of 38.6 percent. CEO James Rohr has boosted income from certain sources and profits by adding to PNC's basic banking business, including the acquisition of Mercantile Bancshares, and diversifying into wealth management and fund services. Additionally, through the deal to acquire Merrill Lynch's fund business late last year, the Pittsburgh-based company cut its stake in money manager BlackRock from 69 percent to 34 percent and the move has paid off: "PNC recorded a $1.3 billion gain on the deal, and its remaining BlackRock shares doubled in the past year," according to BusinessWeek.

The title of the best-performing, mortgage-related entity, however, was retained by Goldman Sachs Group, as it placed 9th on the ranking. The mortgage-backed securities player and top financial-sector company received a grade of "A" for its sales growth of 43.4 percent and three-year returns of 95.7 percent. Led by CEO Lloyd Blankfein, a "master trader," Goldman's trading and investing revenues shot up 52 percent to $25.6 billion, while banking raked in $5.6 billion, up 53 percent, the magazine reported.

Goldman has an indirect interest in subprime servicer Avelo Mortgage.

"Between its trading prowess and dealmaking savvy, Goldman Sachs sets the bar for Wall Street," the publication wrote. "Even as the firm paid rich bonuses, earnings leapt 70%."

While Goldman improved from last year's position of No. 15, the magazine said Goldman will be "hard-pressed" with the Street and markets like China suffering. The MBS player has responded by diversifying geographically and by product mix while investing alongside clients, but analysts are skeptical -- its stock has slipped to 200, from a high of 223 this year.

Mortgage-related entities that did not make it in the top 50 but were within the 75 best performers included E-Trade Financial, Bank of America and Bear Stearns, which respectively placed 57th, 67th and 74th.

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

e-mail: [email protected]

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