| Provident Shedding Subprime, Again
Move announced as company being acquired by National City June 30, 2004 By PATRICK CROWLEY |
| Cincinnati-based Provident Financial Group, which is in the process of being taken over, is looking to shed its $12.5 million subprime mortgage business. This is the second time in as many years that the company has sought to rid itself of subprime assets.Provident, primarily a bank controlled by the family of Cincinnati Reds majority owner Carl Lindner, has hired the New York Investment banking firm Lehman Brothers to locate a buyer.
In a written statement, Provident said it is “exploring alternatives that include, but not limited to, the sale of its subprime mortgage servicing platform and servicing rights, residual interests in subprime mortgage loan securitizations and subprime wholesale and retail origination platforms.” Provident says its subprime business includes $1.1 billion it loans it originated and secures, along with $11.1 billion in outside originations and securitizations, and about $260 million in loans being held for sale. Within a week, the $2.1 billion sale of Provident to National City Corp. of Cleveland is expected to close. Provident will be merged into National City by the end of the year. National City is the largest bank in Ohio, and with the purchase of Provident — which reports $16.7 billion in assets — will become the 10th-largest bank in the United States. According to statements from Provident, Lehman Brothers has identified as many as 15 potential buyers — including mortgage companies, banks and other financial companies. Last year, Provident shed $471 million in subprime mortgage loans at a $40 million net discount. The company’s CEO said at the time, “Removing these subprime mortgage loans from our balance sheet significantly improves our credit quality metrics, including lowering the level of non-performing assets.” The subprime loans reportedly represented just five percent of its loan portfolio, but accounted for 26 percent of nonperforming assets. For all of last year, Provident’s subprime business only accounted for about $5 million of the bank’s $109.3 million in profits, the company said. Provident did not say how many of its 3,200 employees work in the subprime mortgage unit. National City executives said in late April that some mortgage-related jobs would be lost after the merger, but they have not been specific on how jobs might be cut. “Origination capacity is out there,” National City Chairman and CEO David Daberko said in a conference call with equity analysts. “There’s just not as much fuel with interest rates on the rise,” Daberko said. National City’s First Franklin Financial Corp. unit originated more than $20 million in subprime mortgages last year, according to the company’s financial statements. The National Home Equity Mortgage Association reports subprime home equity loan originations hit $200 billion in 2002. The subprime market continues to be strong for lenders this year. Countrywide Financial Corporation, which claims to be the nation’s largest adjustable-rate loan lender, said in a June 8 statement that subprime volume surpassed $3 billion in May, an increase of 89 percent over May of 2003, while year-to-date volume reached $13 billion. However, Fitch Ratings warns in a new report that rising interest rates could have a potential impact on the subprime mortgage market. “While short-term shocks are unlikely, the downside of rising interest rates is in the impact on refinancing activity, home prices and collateral performance in the mortgage sector,” Sarbashis Ghosh, a senior Fitch director, said in a statement. “Moreover, a potential correction in home prices is likely to further impair household cash flows by limiting the amount of available equity,” Ghosh said. |
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Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com |
