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Mergers, CEOs & REITs

Mergers, CEOs & REITs

Recent mergers, acquisitions and other corporate activity

October 30, 2007


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A small bank acquisition is among the few deals in the works as Merrill Lynch & Co. searches for a new chief. A report that gave a glowing outlook for real estate investment trusts gave a starkly contrasting forecast for just mortgage REITs.

Moody’s Investors Service announced a negative outlook for the credit ratings of mortgage REITs, particularly those that were active in originating or purchasing non-agency, single-family, especially nonprime, mortgages.

“Many mortgage REITs are wrestling with flow volume, asset quality, earnings and/or funding challenges,” Moody’s said in the written statement. “Worries that difficulties in the single-family mortgage, homebuilder and housing spaces will spread more forcefully to the commercial property sector are real and warranted.”

However, the overall credit rating outlook for U.S. REITs and real estate operated companies remains stable. The winners will be equity REITs with leadership, good liquidity, operational depth, and established access to diverse financial markets, including unsecured debt, as “these characteristics were not highly valued in recent years when the wave of liquidity washed over the commercial real estate market, but they will lend significant strength now.”

Merrill today announced the retirement of Stan O’Neal as chairman and chief executive officer effective immediately.

The 21-year executive reportedly roiled the investment banking firm’s board of directors by approaching Wachovia about a possible merger without their prior approval just as the company prepared to announce a net loss of $2.3 billion for the third quarter. The massive loss was driven by $7.9 billion in write-downs for collateralized debt obligations and U.S. subprime mortgages — about $3.4 wider than the company had recently warned.

“The company has provided me with opportunities that I never could have imagined growing up, culminating with my leadership of the company over the past five years,” O’Neal said in the statement.

Board member Alberto Cribiore was elected interim non-executive chairman and will chair a search committee which will consider candidates from outside and from within the investment banking giant. Ahmass Fakahany and Gregory Fleming will continue to serve as Merrill co-presidents and chief operating officers.

Prosperity Bank will purchase the six Houston retail bank branches of Banco Popular North America, parents Prosperity Bancshares Inc. and Popular Inc. jointly announced. The deal, expected to close this quarter, calls for Prosperity to pay a premium of 10.10 percent for approximately $140 million in deposits, purchase certain loans and other assets of the branches, as well as retain all of their personnel.

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