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Branch Acquisition Binge Turns Sour

Shearson halts business, restructuring

March 28, 2008

By MortgageDaily.com staff


Following a two-year acquisition and growth binge, a Las Vegas-based "branch consolidator" has halted business and is attempting to survive through a restructuring.

Shearson Financial Network Inc. announced Thursday it has temporarily discontinued all operations.

The company said it is considering alternatives to its present business model. It is also mulling the sale or licensing of some of its assets.

Shearson, which reported earnings of $2.8 million during 2006, previously utilized warehouse lines to fund its business. The latest announcement indicated its revenues are primarily derived from mortgage brokering.

"The mortgage banking industry has undergone a severe restriction of its credit facilities due to the collapse of the subprime loan market," the announcement said. "Financial institutions, such as warehouse lenders, have responded by raising the capital costs necessary to bank a loan in their facility. These increased costs have made banking a loan substantially more expensive and have had an adverse effect on the company's liquidity."

The company said it has retained Harry R. Kraatz to oversee the restructuring of its balance sheet and implement a new business plan. 

Kraatz has worked with several companies that went into bankruptcy.

The dramatic downturn for Shearson, which has previously referred to itself as "a consolidator of independent mortgage brokerages," follows two years of acquisitions and expansion.

In June 2007, Shearson acquired the assets and operations of Dollar Mortgage Corp. in a $1 million cash and stock deal. Dollar reportedly originated $300 million during 2006.

Shearson announced an expansion in May 2007 that would enable it to handle refinances of delinquent borrowers. The company estimated the market for these loans at the time was $300 billion.

Subsidiary Shearson Home Loans reported in April 2007 it had requested its warehouse lenders to double its warehouse capacity. It also announced at that time that it was "facilitating a home for many of the displaced loan officers and wholesale account personnel within Shearson and welcome their business."

A year ago, Shearson announced a joint venture with Stinson Financial, enabling that firm's 30-branch loan origination platform to operate within Shearson's mortgage banking infrastructure.

In January of last year, Shearson said it added a warehouse line-of-credit with Sterling Eagle. It noted at the time that it had boosted the number of states in which it was licensed in from 17 to 47 during 2006.

Shearson announced a deal to acquire Irvine, Calif.-based Allstate Funding in a $5 million cash-and-stock deal in August 2006. That deal was expected to push annual production past $1 billion and employee count to more than 450.

In June 2006, Shearson said it reach an agreement to purchase certain assets of EHomeCredit Inc. in a $4.7 million stock-and-cash deal.

Shearson was acquired by Consumer Direct of America, which changed its name to Shearson Financial Network in June 2006.

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