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Inside the Boardroom

Inside the Boardroom

Recent mergers, acquisitions and corporate activity

June 18, 2007


photo of Coco Salazar
Two investment bankers were stung by subprime losses, while problems with new home construction financing led to two settlements at other institutions. Also among the latest mortgage-related corporate activity were expansion plans for a business that buys nonperforming subprime mortgages.

First Financial Northwest filed with the SEC for an initial public offering of up to about 20.1 million shares of stock, or as many as 23.1 million should demand require it, for $10 per share. Following the transaction, First will trade on the Nasdaq Global Market under the symbol FFNW.

The Federal Home Loan Bank of Atlanta has named former investment banker and mortgage market consultant Richard Dorfman to become its president and chief executive officer on June 20. He succeeds William Ott, who was previously appointed to those roles on an interim basis.

JPMorgan Chase announced it will invest approximately $2 billion to build a 1.3-million-square-foot global investment banking headquarters at Site Five in the World Trade Center complex. The approximately 40-story building will include six “world-class” trading floors and house about 7,000 investment bank employees while providing for future business growth. The move continues JPMorgan’s commitment to Lower Manhattan and New York City and plays an ongoing role in helping to rebuild Manhattan as the financial capital of the world.

The American Securitization Forum announced the leaders of its residential mortgage-backed securities issuers sub-forum are GMAC-RFC/ResCap’s Julianne Linder, who will serve as co-chair through mid-year 2009, and CitiMortgage’s Bill Felts, who will co-chair through mid-year 2008.

Georgia-based United Community Banks Inc., which at the month’s beginning completed its acquisition of metro Atlanta-based Gwinnett Commercial Group Inc., announced that a North Carolina court approved a request by the state to appoint a receiver to take control of developers of a mountain property because they allegedly engaged in deceptive marketing and financing.

United, one of several lenders in this and another related project that apparently will not be completed as planned, financed 83 individual loans for $23.8 million for related lots. Of these, 51 borrowers, with a total debt of $12.2 million, could have difficulty paying their loans and cause the bank’s non-performing loans to increase. While it is currently unable to “quantify its likely loss related to these loans or the extent to which all or any portion of such loss may be covered by insurance,” it believes it has adequate loan loss reserves. Finally, though the loans are real estate secured, collateral values were based on fully-developed lots and appraisers may have intentionally overstated the properties’ values, according to the announcement.

As part of an agreement with the U.S. Department of Housing and Urban Development, Hovnanian Enterprises Inc. will indemnify HUD against any losses that it may sustain with respect to five loans that HUD alleges were improperly underwritten, refund $5,190 for 17 loans and make certain changes in its quality control plans. The agreement follows an audit inspection on the homebuilder’s process of referring business to its affiliated mortgage company and documents related to financing. The homebuilder said it has asked HUD to reconsider the request to refund an additional $24,833 with respect to 65 loans.

On Thursday, securities players Bear Stearns and Goldman Sachs both reported subprime woes for their fiscal second quarters. Bear said that within fixed income net revenues, which sunk 21 percent from record revenues recorded in the second quarter 2006, mortgage-related revenues “reflected both industry-wide declines in residential mortgage origination and securitization volumes and challenging market conditions in the subprime and Alt-A mortgage sectors.” Meanwhile Goldman’s net revenue in its fixed income, currency and commodities division decreased 24 percent from a year earlier, “primarily reflecting lower net revenues in commodities and weak results in mortgages, principally attributable to continued weakness in the subprime sector.”

Thornburg Mortgage Inc. announced Friday it priced an underwritten public offering of 2.75 million shares of 7.50% Series E Cumulative Convertible Redeemable Preferred Stock at $25 per share. The transaction generated a gross $68.8 million that will be primarily used to finance the acquisition or origination of additional adjustable-rate mortgage assets and for working capital. A few days earlier, Thornburg had announced the launch of an underwritten public offering of 2 million shares of Series E Cumulative Convertible Redeemable Preferred Stock.

New Century Financial Corp., which is in the process of liquidation, terminated the employment of founder and CEO Brad A. Morrice, according to a filing with the Securities and Exchange Commission. Holly Etline was appointed to Morrice’s roles and chief restructuring officer and Michael Tinsley to the role of chief financial officer.

Freddie Mac reported its first quarter net loss of $211 million, compared to earnings of $2.0 billion a year earlier, was primarily due to higher mark-to-market losses on the company’s portfolio of derivatives and on the company’s single-family credit guarantee business along with credit spread widening.

MidCountry Financial Corp. recently purchased Pioneer Financial Services and will convert the acquired 19 retail offices, consumer lending facilities and online lending site to a military lending division of MidCountry Bank, according to a press release.

The Federal Reserve Board approved Thursday for First Busey Corp. to merge with Main Street Trust Inc., according to an announcement. The green light came two days after the companies agreed with the Department of Justice to sell five branches in the Champaign County, Ill.

San Antonio, Texas-based Security Service Federal Credit Union announced that it is expanding its presence in Colorado through the acquisition of Denver–based New Horizons Community Credit Union, a deal expected to be completed at month’s end.

Oxford Funding Corp. announced it opened its new headquarters in Houston, Texas, to support the “rapid expansion” it expects in new business volume when it implements its strategy of acquiring and rehabilitating subprime mortgage portfolios.

With $650 billion in subprime loans expected to reset and possibly fall into the non-performing category due to higher monthly payments, “we take the opportunity to restructure the loans and preserve or restore the loan to performing status,” Oxford said, which noted that investors continue to seek securities backed by high-interest loans as alternatives to lower-return investments.


Coco Salazar is an associate editor and staff writer for

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