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Apr-15-2008CapitalSource To Buy Troubled California Bank(topic overview)
CONTENTS:
- BREA, Calif., April 14 /PRNewswire-FirstCall/ -- Fremont General Corporation ("Fremont General" or the "Company") (NYSE: FMT), doing business primarily through its wholly-owned bank subsidiary, Fremont Investment & Loan ("Bank"), is providing additional information with respect to the net premium associated with its announcement earlier today that the Company and the Bank had entered into a definitive purchase and sale agreement (the "Agreement") with CapitalSource TRS Inc. (the "Purchaser"), a wholly-owned subsidiary of CapitalSource, Inc. ("CapitalSource"), that provides for the purchase of substantially all of the Bank's assets, which includes the Bank's participation interest in certain previously sold commercial real estate loans, the assumption of all the Bank's deposits and the acquisition of all the Bank's branches, by a California industrial and loan bank to be organized and wholly owned by the Purchaser. (More...)
- The deal doesn't include Fremont's loan servicing business, which is all that's set to be left of the company after the asset sale closes in the third quarter. (More...)
- Fremont General Corp. shares were up 8 cents, of 17.8 percent, to 53 cents. (More...)
- The deal for Fremont would provide the firm with a well of cash that could be used to make new loans to customers. (More...)
- To find out more about Fremont General, or to subscribe to the Company's email alert feature for notification of Company news and events, please visit http://www.fremontgeneral.com. (More...)
- Shares of Chevy Chase, Md. -based CapitalSource Inc. soared $1.53, or 14.6 percent, to $12.01 in late morning trading. (More...)
- "We look forward to welcoming FIL's retail banking customers and employees to our new bank. (More...)
- Late last year, a group of Orange County bankers took over Fremont. (More...)
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BREA, Calif., April 14 /PRNewswire-FirstCall/ -- Fremont General Corporation ("Fremont General" or the "Company") (NYSE: FMT), doing business primarily through its wholly-owned bank subsidiary, Fremont Investment & Loan ("Bank"), is providing additional information with respect to the net premium associated with its announcement earlier today that the Company and the Bank had entered into a definitive purchase and sale agreement (the "Agreement") with CapitalSource TRS Inc. (the "Purchaser"), a wholly-owned subsidiary of CapitalSource, Inc. ("CapitalSource"), that provides for the purchase of substantially all of the Bank's assets, which includes the Bank's participation interest in certain previously sold commercial real estate loans, the assumption of all the Bank's deposits and the acquisition of all the Bank's branches, by a California industrial and loan bank to be organized and wholly owned by the Purchaser. As previously disclosed, the Purchaser will pay a 2% premium on all the Bank's deposits, and will purchase the Bank's participation interest in previously sold commercial real estate loans at a 3% discount to its net book value (as such term is defined in the Agreement). [1] Embattled subprime lender Fremont Investment & Loan, a subsidiary of Fremont General Corp., announced today that the company has entered into a sales agreement that involves its subsidiary Fremont General Credit Corp., its Bank, as well as Capital Source, Inc., which will serve as the purchaser in the sale. The sale involves Fremont's commercial real estate loan business and does not pertain to its loan servicing operations or residential mortgage assets, Fremont confirmed in a company release. The sale comes at a time when Fremont is trying to raise its liquidity and capital position. Fremont said, "The Purchaser will pay a 2-percent premium on all the Bank's deposits, and will purchase the Bank's participation interest in previously sold commercial real estate loans at a 3-percent discount to its net book value (as such term is defined in the Agreement).[2]
The Company further expects the transaction to close in the third quarter, following receipt of regulatory approvals. "This acquisition of branches and assumption of deposits will give CapitalSource's new bank access to a significant base of deposits with strong growth prospects. Together with CapitalSource's valuable commercial finance lending franchise, this acquisition strengthens our business model and positions us to grow by taking advantage of the attractive lending opportunities now available in the market," commented John K. Delaney, CapitalSource Chairman and CEO. As part of the asset purchase agreement, the Company's new bank (yet to be named) will acquire high quality assets approximately equal to the deposits assumed including, approximately $3.0 billion of cash and short-term investments and a commercial real estate loan participation interest with a 3/31/08 outstanding principal balance of approximately $2.7 billion.[3] Asset Purchase Transaction Overview CapitalSource will assume: -- All FIL deposits (approximately $5.6 billion in retail deposits as of 3/31/08) CapitalSource will acquire: -- Cash and short-term investments at fair value (approximately $3.0 billion at 3/31/08) -- "A" Participation Interest in a diversified pool of commercial real estate loans (principal balance of approximately $2.7 billion at 3/31/08) -- Assets, facilities (22 California branches and a supporting data center), the right to employ personnel related to the branches, systems and other infrastructure necessary to operate the retail branch network, each at net book value CapitalSource will pay: -- A cash premium of $58 million plus 2% of deposits CapitalSource lending commitment: -- If and only to the extent necessary to complete the transaction, CapitalSource has committed to lend to FIL up to $200 million secured by a first lien on FIL's servicing advances using a formula based advance rate Commercial Real Estate "A" Participation Interest Overview: -- Principal balance of $2.7 billion (approximately 49% of the total commercial real estate loan pool of $5.5 billion, with the remainder held by the "B" Participation Interest holder).[3] Under the purchase agreement, CapitalSource will pay a 2% premium on all of the Bank's deposits, and an additional $58 million in cash. Substantially all of the Bank's assets will be acquired by the purchaser, including Bank's participation interest in previously sold commercial real estate loans at a 3% discount to its net book value.[4]
Fremont (FMT), which last week said the New York Stock Exchange warned the company its stock had fallen below listing standards, said the agreement with CapitalSource includes the purchase of substantially all of the bank's assets. Under the deal, CapitalSource (CSE) would acquire the Fremont subsidiary's participation interest in commercial real estate loans, the assumption of all the bank's deposits and the acquisition of all its branches.[5]
Fremont General Corp. is going to sell its bank to CapitalSource Inc. The deal is worth of $170 million. Fremont General Corporation (NYSE:FMT) is a financial services holding company which is engaged in deposit gathering through a retail branch network located in the coastal and Central Valley regions of Southern California and residential real estate mortgage servicing through its wholly owned subsidiary Fremont Investment & Loan. FIL funds its operations primarily through deposit accounts sourced through its 22 retail banking branches which are insured up to the maximum legal limit by the Federal Deposit Insurance Corporation.[6] Fremont General Corporation is a financial services holding company with $8.8 billion in total assets, at September 30, 2007. The Company is engaged in deposit gathering through a retail branch network located in the coastal and Central Valley regions of Southern California and residential real estate mortgage servicing through its wholly-owned bank subsidiary, Fremont Investment & Loan. Fremont Investment & Loan funds its operations primarily through deposit accounts sourced through its 22 retail banking branches which are insured up to the maximum legal limit by the FDIC. The Retail Banking Division of the Bank continues to offer a variety of savings and money market products as well as certificates of deposits across its 22 branch network.[1]
CapitalSource has entered into a definitive asset purchase agreement with Fremont Investment & Loan ("FIL"), a California industrial bank, to assume all of FIL's retail deposits (approximately $5.6 billion as of 3/31/08), and to operate its 22 retail banking branches.[3] BOSTON, Apr. 14, 2008 (Thomson Financial delivered by Newstex) -- CapitalSource (NYSE:CSE) Inc. Monday said it signed a definitive asset purchase agreement to assume all of Fremont Investment Loan's retail deposits of about $5.6 billion and operate its 22 retail banking branches.[7]
CapitalSource will buy out $5.6 billion of deposits held by Fremont Investment & Loan. It will also take over Fremont's 22 retail bank branches. It will also acquire $3 billion of cash and short-term investments from Fremont and an interest in a $2.7 billion pool of commercial real estate loans.[6] Tracking the market and economic trends that shape your finances. Fremont General Corp., once one of Southern California'''s biggest sub-prime mortgage lenders, made a deal today to shed most of its deposit-taking bank -- a place where Southland savers have long earned some sweet interest rates. Fremont, already a shadow of its old self, agreed to sell its 22 Fremont Investment & Loan branches, and their $5.6 billion in deposits, to CapitalSource Inc. of Chevy Chase, Md.[8] Monday, struggling lender Fremont General Corp. in Brea said it would sell its retail operations, including 22 bank branch offices in California and $5.6 billion in deposits, to CapitalSource Inc. of Chevy Chase, Md. The New York Stock Exchange suspended trading of Fremont shares and moved to delist the company, once the nation's fifth-largest provider of home loans to those with poor or little credit. The NYSE noted that Fremont had fallen below Big Board listing standards into penny-stock territory, with its stock trading at less than $1 for more than 30 consecutive days.[9]
CapitalSource is purchasing ''substantially all assets and deposit liabilities," according to Fremont General Corp. of Brea, Calif., the parent of Fremont Investment & Loan, but is not acquiring the parent company. ''Our business plan envisions the sale of approximately 2.5 billion of CapitalSource loans to the new bank, making this transaction immediately accretive," Thomas A. Fink, CapitalSource CFO, said in a statement.[10] The Company's periodic reports as filed with the SEC can be accessed at http://www.fremontgeneral.com and on the EDGAR's section of the SEC's website at http://www.sec.gov. These statements and the Company's reported results herein are not guarantees of future performance or results and there can be no assurance that actual developments and economic performance will be those anticipated by the Company. Actual developments and/or results may differ significantly and adversely from historical results and those anticipated by the Company for the fiscal year ending December 31, 2008 as a result of various factors which are set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, Quarterly Reports on Form 10-Q, and its reports on Form 8-K and other documents filed by the Company with the Securities and Exchange Commission from time to time. This News Release may be deemed to be solicitation material with respect to the proposed transaction involving the purchase of substantially all of the assets and all deposits of Fremont General Corporation's wholly-owned bank subsidiary, Fremont Investment & Loan. As noted in the news release above, in connection with the proposed transaction, Fremont General Corporation will attempt to solicit its shareholders if it is able to produce enough reliable financial information in a timely enough manner for inclusion in a proxy statement to be prepared for the purpose of conducting a proxy solicitation with respect to the proposed transaction.[1]
Fremont General Corporation is not currently engaged in a solicitation of proxies of the shareholders of Fremont General Corporation in connection with seeking the approval of the proposed sale of substantially all of the assets and deposits of Fremont Investment & Loan.[1]
The sale will rescue depositors that had some $5.6 billion of assets at Fremont Investment & Loan, a thrift that the Federal Deposit Insurance Corp (FDIC) called "undercapitalized" late last month. CapitalSource will add 22 branches and secure cheaper and more dependable funding for its commercial finance activities.[11] The $170 million deal would give CapitalSource control over the assets of Fremont Investment & Loan, based in Brea, Calif. The 70-year-old bank was a major subprime mortgage lender until it agreed to a cease-and-desist order with the Federal Deposit Insurance Corp. a year ago.[12] CapitalSource is paying a 2 percent premium for the deposits, which it will offset by picking up $3 billion in cash and short-term investments and interest on $2.7 billion worth of a $5.5 billion pool of commercial real estate loans. Last month the Federal Deposit Insurance Corp. gave Fremont 60 days to either sell its bank unit or raise more capital. That followed an FDIC order last year for Fremont to shut down its troubled subprime lending business.[13] CapitalSource will pay a 2 percent premium on the bank's deposits and an additional $58 million for the branches, and will receive a discount on retained interest in certain real estate loans held by Fremont. "Fitch views this transaction as neutral to CapitalSource and recognizes that this transaction reflects the company's plan to secure access to deposit-based funding that would further diversify its funding platform," Fitch said in a statement.[14] In response to questions that it has received, the Company is advising that, after giving effect to a deposit premium of approximately $112 million (based on estimated deposits of $5.6 billion at March 31, 2008), the additional referenced cash payment of $58 million, less the discount given on the commercial real estate participation interest of approximately $80 million, the Company estimates that the net effect of the proposed transaction will result in a premium to the Bank of approximately $90 million.[15] The sale includes $5.6 billion in deposits, $3 billion in cash and liquid investments and Fremont's $2.7 billion stake in commercial real estate loans, Fremont said in a statement today. The firm said it's paying $58 million; add an additional 2 percent of the $5.6 billion in deposits, for a total of $170 million.[16]
The new bank, yet to be named, will gain assets approximately equal to the deposits CapitalSource is assuming, including about 3.0 billion in cash and short-term investments and a commercial real estate loan participation interest with outstanding principal balance of about 2.7 billion.[10] CapitalSource TRA is a subsidiary of CapitalSource, Inc. that financed the purchase of Banks assets, which included the participation interest of Fremont in certain previously sold commercial real estate loans.[17] A California industrial bank would be organized and wholly owned by CapitalSource TRA to assume the deposits and acquire the branches of Fermont. Under the terms of the agreement, CapitalSource TRA would pay a 2% premium on all the deposits and would buy participation interest in previously sold commercial real estate loans at a 3% discount to its net book value.[17]
On the Fremont deal, CapitalSource, a middle-market commercial lender, is buying $2.7 billion worth of commercial loans in which Fremont was a participant, but it is not taking on any of the company's troubled home loans. The point of the deal is to enable CapitalSource to diversify its funding sources by acquiring a healthy deposit-gathering business in California, CapitalSource Chief Executive John K. Delaney said. "We're very interested in the franchise," he said. He added that Fremont is "old fashioned" in a good way, in that nearly all of its deposits come through the doors of its 22 branches rather than via telephone or Internet marketing.[9] "We have long sought deposit funding as a way to further diversify and strengthen our funding platform. This transaction will accomplish that objective in an optimal and expeditious way. Forming the new bank and acquiring branches with $5.6 billion in deposits will enhance CapitalSource's liquidity profile, increase our profitability and improve our capital efficiency," said Thomas A. Fink, CapitalSource CFO. "Our business plan envisions the sale of approximately $2.5 billion of CapitalSource loans to the new bank, making this transaction immediately accretive," Fink added.[3] CapitalSource Inc., of Chevy Chase, Md., agreed to pay a maximum of $198 million to assume about $5.6 billion of deposits from Fremont's banking subsidiary, Fremont Investment & Loan.[18] As for CapitalSource, the market must think the company is getting a good deal in the complicated transaction : The company's shares jumped $1.44, or nearly 14%, to $11.92. Photo: An employee of Fremont Investment & Loan carries his belongings from the company's Anaheim office in March 2007.[8] Last month, federal bank regulators issued a rare ultimatum saying Fremont Investment & Loan, the company's main business, needs to raise money or face a shutdown by the end of May. Fremont said it's entering the deal with CapitalSource as a result of the regulatory order. With the sale, Fremont said it's unable to "to provide any assurances as to whether there will be any funds available to the company, its creditors or its shareholders in view of the amount of the bank's existing obligations and contingent claims."[19] The stock was up 10 cents around 8:35 am ET, rising to 55 cents. If pre-market gains hold, the stock will open at its highest level in about two weeks. Fremont General, doing business primarily through its wholly-owned bank subsidiary Fremont Investment & Loan, signed a deal with CapitalSource TRS Inc., a unit of CapitalSource, Inc.[20] Fremont Investment Loan is a California-based industrial bank. It's a subsidiary of Fremont General Corp. (NYSE:FMT PR) (NYSE:FMT) CapitalSource said the transaction secures attractive funding to support and grow core lending business.[7]
Fremont Investment & Loan is a 70-year-old community bank operating in central and southern California. It is a wholly-owned subsidiary of Fremont General Corp., a publicly traded company that has been battered by the real estate downturn. In March, Fremont announced it had sold its residential real estate mortgage servicing unit.[21] Brea-based Fremont General Corp., a onetime subprime mortgage lender that has struggled to survive as a bank, is selling branches, deposits and its stake in commercial real estate loans, the company said Monday.[19] Mortgage lender Fremont General Corp. appeared to rescue itself from potential seizure by regulators, agreeing to sell most of its investment and loan bank to a commercial finance company.[18]
Federal and state regulators recently ordered the bank to raise capital or consider a sale. Fremont announced in March that it had sold its residential-mortgage-servicing unit. Its parent company, Fremont General, said last week that it had received written notice that the New York Stock Exchange reserved the right to take "accelerated action" against the company if the share price continued to remain below $1. (Fremont General's shares closed up 20 percent, at 54 cents, after news of the deal yesterday.)[12] Falling stock prices trimmed the value from $652 million when it was announced to $322 million when TierOne's parent company backed out of the deal. CapitalSource said in a news release Monday that the Fremont deal will strengthen its liquidity, allowing it to continue to make loans for mid-market business.[22] If Brea-based Fremont fails to get shareholder approval, but does get an OK from regulators, it will consider filing for bankruptcy to facilitate the deal, the company said. CapitalSource, a Chevy Chase, Md.,-based investor and lender, said it's offering $170 million and will loan Fremont up to $200 million until the deal closes.[13] CapitalSource, the Chevy Chase, Maryland-based commercial lender, also agreed to loan Fremont as much as $200 million. Profits Are Up 1,056.2% for This Wisconsin Company Commodities are on a tear - and so is mining equipment. This "pick-and-shovel" company has already sold out two-thirds of its equipment for 2008.[23]
The company will also pay another $58 million at closing and lend up to $200 million to cover any funding shortfalls. It is not buying Fremont's loan servicing operations or residential mortgage assets. Finance companies such as CapitalSource that fund themselves in the bond markets have found their borrowing costs rising, in some cases to prohibitively high levels, amid the credit crunch.[11] The bank's remaining assets will be sold at book value, while CapitalSource will pay $58 million in cash at closing and provide a loan of up to $200 million to make up for insufficient funding.[5]
The Brea, California-based Fremont General said the deposit premium, the $58 million in cash and the purchase price for the participation interest, cash and other assets being sold would only partially offset the deposits being assumed by CapitalSource TRA.[17] April 14 (Bloomberg) -- Fremont General Corp., the former subprime lender facing a deadline to raise funds or find a buyer for its bank, will sell the unit's retail banking assets to CapitalSource Inc. for as much as $198 million.[24] Fitch Ratings on Monday backed its ratings on about $800 million of CapitalSource Inc. debt after the commercial lender said it will acquire the retail banking operations of Fremont General. The rating agency said CapitalSource (nyse: CSE - news - people )'s issuer default and senior unsecured ratings remain "BBB-," while its senior subordinated rating stays at "BB+."[14] CapitalSource is acquiring the retail banking operations of Fremont General for $170 million after the troubled lender was hit hard by the subprime mortgage-led crisis. Get stories by e-mail on this topic.[16]
CHEVY CHASE, Md. (AP) — CapitalSource is acquiring the retail banking operations of Fremont General, a move that will shore up and diversify its portfolio as credit markets tighten, the commercial lender said Monday.[22]
Fremont General Corp. agreed to sell its retail bank assets to CapitalSource Inc. of Chevy Chase, Md., although Fremont may have to file Chapter 11 protection to complete the transaction.[25] NEW YORK (Reuters) - Fremont General Corp (FMT.N: Quote, Profile, Research ) said on Monday it was selling its bank branches and deposits to CapitalSource Inc (CSE.N: Quote, Profile, Research ), several weeks after U.S. regulators ordered the struggling California lender to raise capital or put itself up for sale.[11] CapitalSource will only be taking over the bank branches, not acquiring the whole company or any liabilities associated with Fremont General, which is based in Santa Monica, Calif. In March, regulators gave Fremont 60 days to raise new capital or sell its banking subsidiary because the bank was considered "undercapitalized."[22]
Customers should experience no change in interest payments or return of principal and will continue being served at the same branches, which will be renamed, according to CapitalSource. Brian Graham, a senior vice president with CapitalSource, said in an e-mail, "Customers should be excited about this transaction and we look forward to welcoming (Fremont's) retail banking customers to our new bank. They should look forward to a stronger bank standing behind them."[13]
The proposed transaction includes the sale of 22 Fremont bank branches in southern California. It doesn't include Fremont's loan servicing operation or residential mortgage assets.[24] Fremont said it had previously considered a sale. It sold most of its bank unit's assets but retained the bank itself as well as its loan servicing operations and mortgage-related assets. CapitalSource is mum on its plans for Fremont employees and operations in Orange County, except to say it will maintain all Fremont's 22 branches statewide. It plans to apply to federal and state regulators to form a California-charted industrial bank.[13]
The "A" Participation Interest has paid down from $4.2 billion to the current level of $2.7 billion. -- Receives 70% of principal payments, without regard to the "A's" actual percentage of the participation interest, resulting in accelerated amortization. iStar is responsible to fund all unfunded commitments on the loans. iStar FM Loans LLC, a subsidiary of iStar Financial, is the "B" Participation Interest holder as well as the agent and servicer for all loans CapitalSource will hold an analyst and investor conference call with a simultaneous web cast April 14, 2008 at 11:00 a.m. (Eastern Time) to discuss the Company's plans to form a bank and acquire the FIL assets.[3] CapitalSource lends money for corporate buyouts, real estate deals and other purposes. It clients include high-end shoe retailer Jimmy Choo and Steve Case's vacation company Exclusive Resorts. All told, its asset portfolio as of Dec. 31 was approximately $20.9 billion. It had approximately 560 employees at end of last year, located in offices across the United States and in Europe.[21] The Brea lender may need to file bankruptcy to complete deal. Fremont General, under pressure from its regulators, will sell all of its $5.6 billion in consumer deposits as well as other assets to CaptialSource Inc., in a tentative deal expected to close by October.[13] Chevy Chase, Md. -based CapitalSource announced the deal, which will give it access to the California bank's 22 branches and $5.6 billion in deposits, earlier in the day.[14] CapitalSource, a commercial lender based in Chevy Chase, has reached an agreement to buy most of a California community bank with 22 branches and $5.6 billion in deposits.[21]
The deal gives CapitalSource access to the distressed California bank's 22 branches and $5.6 billion in deposits.[22]
Under the deal, which includes Fremont's 5.6 billion in retail deposits, CapitalSource would operate the bank's 22 retail branches.[10]
CapitalSource is set to pay a 2% premium on Fremont's $5.6 billion in deposits.[19] CapitalSource agreed to pay a cash premium of $58 million plus 2 percent of the $5.6 billion in deposits.[12]
CapitalSource also is set to pay Fremont $58 million in cash at the closing of the deal.[19]
The deal to acquire the assets of Fremont Investment & Loan, based in Brea, Calif., would provide CapitalSource with a well of cash that can be used to make loans to customers. That's important because CapitalSource's business is based on borrowing money from the credit markets and then lending the funds to middle-market businesses at higher rates, giving CapitalSource a profit from the spread. In recent months, turmoil in those markets has made it more expensive to borrow the money it wants to lend.[21] The deal provides for the purchase of substantially all of the Fremont Investment & Loan's assets, excluding Bank's loan servicing operations or residential mortgage assets.[20] Amid tighter credit markets, commercial lender CapitalSource of Chevy Chase said Monday it plans to purchase the assets of Fremont Investment & Loan, a California industrial bank.[10]
CapitalSource will also acquire other assets from Fremont, including bank branches and a pool of commercial real-estate loans.[18]
Fremont valued the net effect of the proposed transaction at about $90 million, reflecting the discount on the sale of the commercial real estate loans, in a second statement released after the close of regular trading. The company said it wasn't "able to provide any assurances on whether any funds will be available to the company, its creditors or its shareholders'' after the sale. Fremont has lost more than 90 percent of its market value in the past 12 months as the U.S. housing slump deepened.[24] The "A" Participation Interest receives 70% of the principal payments from a $5.5 billion pool of commercial real estate loans.[3] The loans are managed by a subsidiary of iStar Financial, Inc. "We conducted extensive loan-level diligence on the "A" Participation Interest to be acquired. It is well secured by a diverse portfolio of high-quality commercial real estate assets and will continue to experience accelerated paydowns because it has a preferential principal amortization mechanism. We view iStar's role as asset manager to be a significant advantage, as we hold iStar in very high regard and view them as a "best-in-class" manager of commercial real estate debt and loan assets," added Delaney.[3]
CapitalSource will pay a 2 percent premium for deposits and a 3 percent discount for commercial real estate loans. Other assets will be sold at net book value.[11] CapitalSource will pay a 2% premium on all deposits, and will buy Fremont's real estate loans at a 3% discount to net book value, according to a press release.[5]
Fremont Investment & Loan signed an agreement today to sell all of its retail deposits to CapitalSource Inc.[26] CapitalSource said it is not acquiring Fremont Investment Loan, Fremont General Corp., any contingent liabilities, or business operations except the retail branch network.[7]
CapitalSource, a commercial lending, investment and asset management business focused on medium-sized firms, will have access to 22 Fremont retail branches.[16]
Delaney said the new assets allow the company, whose customers comprise small and mid-sized commercial borrowers, to ''grow by taking advantage of the attractive lending opportunities now available in the market." The deal comes a few weeks after CapitalSource terminated its merger agreement with TierOne Bank, a community bank in Lincoln, Neb.[10] In order to facilitate consummation of the transaction, to the extent that the Bank does not have sufficient funds available at the time of the closing the Agreement provides that an affiliate of CapitalSource will provide the Bank with a loan of up to $200 million, to be secured by the Bank's servicing advance receivables.[15] CapitalSource is expected to loan the company $200 million as part of the deal.[19] Chevy Chase, Md. -based CapitalSource will also loan Fremont as much as $200 million.[27] The Chevy Chase, Md. -based finance company will also provide a loan of up to $200 million to cover any gaps in funding.[26]
The company plans to sell $2.5 billion of CapitalSource loans to the new bank.[22] California's mortgage woes keep landing on Wall Street's doorstep. Wachovia Corp. surprised investors Monday by saying it had raised $7 billion in new capital and slashed its dividend. The nation's fourth-largest bank is shackled with billions of dollars in troubled adjustable-rate mortgages from its 2006 acquisition of a California savings and loan.[9]
Whitney said $18 billion worth of Wachovia's mortgages now exceeded the value of the underlying homes. She predicted that the bank would have to continue adding to its loan-loss reserves for at least the next two quarters. Vickrey estimated that Wachovia also has $8 billion to $10 billion of additional mortgage-related exposure that doesn't show up on its balance sheet. Although the company hedged its mortgage exposure through offsetting investments, Vickrey said its ability to collect on those investments depends on the financial condition of investors on the other side of the trades.[9]
Fremont has been among the lenders hit hardest by the subprime mortgage crunch. In late March, Freemont said the FDIC ordered a directive requiring the company to recapitalize or sell its banking unit. Fremont earlier this year hired financial advisers to help explore strategic initiatives, including raising more capital and a potential sale of the bank.[5] Brea-based Fremont last year was forced out of the sub-prime business by regulators who were trying to protect the bank from ruin. In March the Federal Deposit Insurance Corp. went a step further, telling Fremont either to raise capital or sell its banking unit. At this point the loss-ridden company looks like it'''s just winding down its affairs.[8]
Fremont was told earlier that it would have to acquire capital or find a buyer by May 26. Last year, the Federal Deposit Insurance Corp. forced the bank to stop making subprime loans because the bank, which moved to Brea earlier this year from Santa Monica, didn't ensure that borrowers could actually repay the loans.[25] Fremont, a mortgage lender based in Brea, was ordered by the Federal Deposit Insurance Corp. to stop making subprime loans a year ago.[27] A year ago, for example, Fremont was paying 5.6% on a one-year CD -- far above the national average rate of 4.16% at the time, according to rate-tracker Informa Research Services. With federal deposit insurance, savers never have to say they'''re sorry for funding bad loans.[8]
The deal doesn't include Fremont's loan servicing business, which is all that's set to be left of the company after the asset sale closes in the third quarter. [19] The sale does not include Fremont's loan servicing operation or residential mortgage assets.[25] The deal, which would require regulatory and shareholder approval, does not include the sale of Fremont's loan-servicing operations or residential mortgage assets.[5]
CapitalSource would rebrand the 22 branches under a name to be announced. It did not acquire Fremont's loan-servicing operations or residential mortgage assets.[12]
Maryland's CapitalSource Inc. is buying the assets from Fremont to form a California industrial bank.[19] Bank cuts its dividend and raises $7 billion. Lender Fremont will sell its retail assets.[9] CapitalSource, with an asset portfolio of about $20.9 billion, failed last month to complete a $652 million acquisition of TierOne Corp., a Lincoln, Nebraska-based bank.[24]
CapitalSource is going to lend the company $200 million. It plans to construct a new California-chartered industrial bank.[6] CapitalSource also agreed to lend the banking business as much as $200 million. It plans to form a new California-chartered industrial bank.[16]
The company also agreed to lend the bank up to $200 million, according to a news release.[12]
The Brea, California-based company said that it estimates that the net effect of the proposed transaction will result in a premium to the Bank of approximately $90 million.[4] The proposed transaction does not include the sale of the Bank's loan servicing operations.[15]
The agreement requires regulatory and shareholder approval. "There is no assurance that the company will be in a position to produce enough reliable financial information in a timely enough manner to conduct a proxy solicitation with respect to the proposed transaction,'' Fremont said in its statement.[24] The agreement also required that Fremont General might file a voluntary petition for bankruptcy following approval of the proposed transaction by the Regulatory Authorities in order to facilitate the consummation of the proposed transaction.[17] If a proxy solicitation does commence, Fremont General Corporation and its directors and executive officers and other members of management and employees may be deemed to participate in the solicitation of proxies in respect of the proposed transaction.[1]
Fremont General Corp. shares were up 8 cents, of 17.8 percent, to 53 cents. CapitalSource has tried before to buy a bank, but its plan to acquire TierOne Bank, negotiated last May, fell apart in March due to the turmoil in credit markets and regulatory delays. [22] The New York Stock Exchange said Fremont's shares may be suspended from trading. "CapitalSource has been looking for ways to diversify its funding,'' said Jeff Davis, an analyst at FTN Midwest Securities Corp. "Obtaining a thrift and its deposits is a good way to do that.''[28] With the stock trading for about 50 cents, the New York Stock Exchange today said the shares were "no longer suitable for listing on the NYSE." Fremont made a lot of loans its shareholders now regret, but its depositors made out.[8]
The deal for Fremont would provide the firm with a well of cash that could be used to make new loans to customers. That's important because CapitalSource's business is based on borrowing money from the credit markets and then lending the funds to middle-market businesses at higher rates. Recent turmoil in those credit markets has made it more expensive to borrow the money. [12] The advance came on news that CapitalSource will buy substantially all of the company's investment and loan assets.[20]
The company plans to form a new California-chartered industrial bank from the acquisitions, and said it would file applications with the Federal Deposit Insurance Corp. and a California agency within two weeks. ''This acquisition of branches and assumption of deposits will give CapitalSource's new bank access to a significant base of deposits with strong growth prospects," John K. Delaney, CapitalSource chairman and CEO, said in a statement.[10] The Company will file applications with the California Department of Financial Institutions (DFI) and with the Federal Deposit Insurance Corporation (FDIC) to form a de novo California-chartered industrial bank. CapitalSource has communicated its plans to the FDIC and DFI over recent months and expects to file the required applications within approximately two weeks.[3]
As previously stated, completion of the proposed transaction is subject to the approval of the Federal Deposit Insurance Corporation and the California Department of Financial Institutions, as well as approval of the Company's shareholders and the satisfaction of customary closing conditions.[1]
"We have long sought deposit funding as a way to further diversify and strengthen our funding platform, said Thomas Fink, the company's chief financial officer. "This transaction will accomplish that objective in an optimal and expeditious way." CapitalSource has not announced a name for its new banking operation. It expects the acquisition, which is subject to regulatory approval, to close in the third quarter.[27]
CapitalSource isn't the only local company that is diversifying into banking. It bought Long Island's North Fork Bank in December 2006 for $13.2 billion.[12] When Wachovia acquired Golden West, nearly all of the savings and loan's mortgages were option ARMs. The loans now account for $121 billion of Wachovia's $170 billion of mortgages, the company said.[9] The Dow Jones industrial average fell 23.36 points to 12,302.06. Wachovia shares sank $2.26, or 8%, to $25.55, their lowest closing price since 2000. Much of Wachovia's trouble stems from so-called option ARMs acquired in the bank's purchase of Oakland-based Golden West Financial Corp. Under the leadership of industry legends Herb and Marion Sandler, Golden West pioneered mortgages -- marketed under the name Pick-a-Pay -- that let borrowers choose their own payment options, including paying less than current principal and interest.[9]
Fremont's decision to sell its bank was based on the company's week financial state after the subprime mortgage credit crisis.[6]
The company expects the bank deposit and asset purchase to close in the third quarter.[7] The Bank's other assets to be sold in the transaction, at net book value include real and personal property, cash and certain other assets.[15]
Fremont's remaining stake in commercial real estate loans it sold off are being bought at a 3% discount.[19] Fremont, based in Brea, California, was one of the 10 largest U.S. subprime mortgage lenders until the FDIC ordered it in March 2007 to stop making risky home loans.[11] Fremont, founded in 1937, was the nation's fifth-largest subprime lender to consumers with poor or limited credit until regulators demanded a halt in March 2007 because too many borrowers couldn't repay. At least 100 mortgage companies ceased operations or sold themselves last year.[24] Fremont focused on mortgage lending until early last year, when regulators forced it to cease originating mortgages, saying it did not have proper risk management oversight. Fremont later sold its mortgage assets.[22]
The company said last month that it received default notices on $3.15 billion in subprime mortgages it sold to investors a year ago.[22]
McLean-based Capital One Financial, the largest independent issuer of credit cards in the U.S., bought Hibernia National Bank of New Orleans for $4.9 billion in November 2005.[21] The Charlotte, N.C., bank also set aside $2.8 billion for anticipated loan losses, a move that some experts said would probably be repeated in coming quarters. "You're still left wondering how much more there is to come," said analyst Donn Vickrey of Gradient Analytics Inc. in Scottsdale, Ariz. He said the rate of nonperforming loansat Wachovia was "still accelerating."[9]
The Purchaser will pay the bank at closing an additional $58 million in cash.[2] CapitalSource will pay 58 million, plus 2 percent of Fremont's deposits, for a total of 170 million.[10]
Terms of the deal were not disclosed. CapitalSource only acquired Fremont's assets, not its liabilities, according to Delaney.[21] About CapitalSource CapitalSource (NYSE: CSE ) is a leading commercial lending, investment and asset management business focused on the middle market.[3] The acquisition will put CapitalSource, a big commercial lender, in the retail banking business for the first time.[27] The buyer, a lender to small- and mid-size businesses, has been trying for some time to get into the general banking business. It had planned to buy a Nebraska-based bank but ended the agreement last month as the credit crunch worsened.[8]
CapitalSource has been trying to get into banking for about a year. Its proposed acquisition of Nebraska-based TierOne Bank, negotiated in the days of easy credit last spring, was terminated by the CapitalSource board last month due to ongoing problems in the credit market that led to a reduction in TierOne's stock price.[21] CapitalSource (NYSE: CSE) canceled plans to acquire Lincoln, Neb. -based TierOne Bank in March, nearly a year after the deal was announced.[27] CapitalSource plans to rename the bank but has yet to disclose what it will call the brand. The transaction is scheduled to close in the third quarter of this year.[21] Fremont was represented by Credit Suisse Group and Sandler O'Neill & Partners and by the legal firm of Patton Boggs LLP. CapitalSource was represented in the transaction by Citigroup Inc. and the law firm of Bingham McCutchen LLP.[24]
To find out more about Fremont General, or to subscribe to the Company's email alert feature for notification of Company news and events, please visit http://www.fremontgeneral.com. [1] Fremont General (NYSE: FMT) was ordered last month to find new capital or seek a buyer after the FDIC determined it was undercapitalized.[27]
Shareholders may obtain free copies of the documents if filed with the Securities and Exchange Commission by Fremont General Corporation by contacting: Investor Relations, Fremont General Corporation, 2727 East Imperial Highway, Brea, CA 92821, telephone: (714) 961-5000 or by visiting the Fremont General Corporation's website at http://www.fremontgeneral.com.[1]
Fremont may not be able to get shareholder approval for the sale by the deadline, the company said, so it may be forced to file for bankruptcy protection to help the sale move forward.[25] The asset sale, if approved, will nix the need for the FDIC to take over Fremont to guarantee consumers' certificates of deposit, or CDs.[13]
CapitalSource manages an asset portfolio which as of December 31, 2007 was approximately $20.9 billion.[3] CapitalSource has an asset portfolio of about 21 billion, with 562 employees in the United States and Europe.[10]
Shares of Chevy Chase, Md. -based CapitalSource Inc. soared $1.53, or 14.6 percent, to $12.01 in late morning trading. [22] CapitalSource shares jumped nearly 14 percent on the news, closing yesterday at $11.92.[12] CapitalSource shares are owned by prominent institutions, including Farallon Capital, a San Francisco-based hedge fund run by Thomas F. Steyer. Shares of CapitalSource closed at $10.48 Friday, down more than 50 percent from its 52-week high of $27.40.[21]
Fremont stock closed Friday at 45 cents a share, down from a 52-week high of $13.80.[5] Shares of the Chevy Chase, Md. -based finance company closed Friday at $10.48.[7] The company's shares rose $1.55, or 14.8 percent, to $12.03 in midday trading.[11] FMT is currently trading at $0.53, up $0.08 or 17.80, on a volume of 0.13 million shares.[17]
The report also highlighted the St. Paul, Minnesota-based company's $7 million contribution to various communities.[17]
As of March 31, retail deposits were worth approximately $5.6 billion.[29] In a conference call Monday, John Delaney, chief executive of CapitalSource, said with recent upheaval in the market to sell loans to Wall Street, companies that use consumer deposits to fund loans will have a competitive advantage in the foreseeable future.[13] "We have long sought deposit funding as a way to further diversify and strengthen our funding platform," CapitalSource Chief Financial Officer Thomas Fink said in a statement.[22] CapitalSource is a leading commercial finance company serving the middle market. It offers unparalleled solutions to complex financial challenges, excelling in situations that require extraordinary service, creativity, flexibility, insight and speed.[6] CapitalSource isn't the only local company that is diversifying into banking.[21]
"We look forward to welcoming FIL's retail banking customers and employees to our new bank. [3] Capital Source said it will also operate Fremont's 22 retail banking branches.[26]
Delaney said that the Fremont branches would stay open with many of the same employees and that there would be no changes in the interest rates or other terms of existing certificates of deposit or other accounts.[9] The purchase price isn't expected to offset the deposits being bought, according to Fremont.[19]
Fremont, based in Brea, California, faced a May 26 deadline from regulators to get new funds for the bank or find a buyer.[24] The company rose 8 cents, or 18 percent, to 53 cents at 9:30 a.m. in composite trading before the New York Stock Exchange halted transactions.[24] Wachovia's headaches didn't surprise everybody on Wall Street. Despite repeated denials by executives, Oppenheimer & Co. analyst Meredith Whitney predicted last week that the bank would cut its dividend. She was vindicated Monday when Wachovia said it would cut the quarterly dividend 41% to 37.5 cents a share. She said the denials and the company's slowness to recognize publicly the extent of its mortgage-related problems -- well after such rivals as Bank of America Corp. took major write-offs -- raised "an issue of management credibility."[9] Taking the plunge: Opportunity knocked and this entrepreneur rushed in. He didn't change his sales strategy. He changed his client strategy. Charles Myers bootstrapped his company after staggering losses on a business deal gutted the company'''s capital. Now Myers takes direct involvement in each project and lets someone else handle what had primarily been his role, business development.[27] The deal "enhances our liquidity in what is potentially, over time, a game-changing manner,'' said CapitalSource Chief Executive Officer John Delaney on a conference call today. "It will lower our cost of funds over time, which will lead to improved profitability." he added. This article is copyrighted by International Business Times.[16]
Late last year, a group of Orange County bankers took over Fremont. Early this year, they moved the company's headquarters from Santa Monica to Brea. [19] General Motors Corp. ( GM ) announced yesterday (Monday) that it would begin construction on a $200 million plant in Joinville City, Brazil.[23] Exxon recently signed a $75 million new energy development pact with MOL Hungarian Oil and Gas PLC to begin exploration in Hungary's Mako Trough region, MarketWatch reported.[23]
SOURCES
1. Fremont General Corporation Provides Further Information as to Net Premium Associated With Its Previously Announced Proposed Transaction With Affiliate of CapitalSource, Inc.
2. DSNews.Com Default Servicing In Print and Online - Formerly REO Magazine
3. CapitalSource to Acquire Bank Branches and Assume $5.6 Billion in Deposits
4. RTTNews - Breaking News, financial breaking News, Positive EPS Surprises, Stock research .
5. UPDATE: Fremont To Sell Banking Unit To CapitalSource
6. Fremont General Corp is selling its bank to CapitalSource Inc - Pravda.Ru
7. CapitalSource to acquire Fremont bank branches, assume $5.6B in deposits
8. Fremont, once the home of sweet CD yields, sells its branches : Money & Company : Los Angeles Times
9. Wachovia's pain felt on Wall Street - Los Angeles Times
10. CapitalSource angles for billions in lending capital
11. Fremont to sell bank branches to CapitalSource | Markets | Bonds News | Reuters
12. CapitalSource To Buy Troubled California Bank - washingtonpost.com
13. Money: Fremont to sell $5.6 billion in deposits | fremont, bank, capitalsource, billion, deal - OCRegister.com
14. Fitch Stands by CapitalSource Ratings - Forbes.com
15. SunHerald.com : Fremont General Corporation Provides Further Information as to Net Premium Associated With Its Previously Announced Proposed Transaction With Affiliate of CapitalSource, Inc.
16. CapitalSource Aquires Fremont for $170 Mln - International Business Times -
17. RTTNews - Breaking News, financial breaking News, Positive EPS Surprises, Stock research .
18. Free Preview - WSJ.com
19. Orange County Business Journal Online
20. RTTNews - Global financial news, Hot Stocks, Stock Splits, Long Term Stocks.
21. CapitalSource Buys Calif. Bank - WashBiz Blog
22. The Associated Press: CapitalSource Acquiring Fremont Branches
23. Global Investing Roundups
24. Bloomberg.com: U.S.
25. Los Angeles Business Journal Online - business news and information for Los Angeles California
26. CapitalSource Buys Fremont Branches and $5.6 Billion of Deposits - BankNet360.com
27. Fremont General selling retail banking business for $58M - Los Angeles Business from bizjournals:
28. Bloomberg.com: Worldwide
29. RTTNews - Quick facts Articles, Positive EPS Surprises, News Analysis, Earnings, Audio News.
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