GE's U.K. Deal Brings Subprime To 20 Billion Dollars
General Electric has finally taken the big plunge into subprime receivables - but overseas, not here.
In late February, the European division of GE inked a deal to buy the consumer finance division of Abbey National Bank, London.
GE will pay about $1.4 billion (U.S.) for Abbey's First National unit, which has $7 billion in servicing rights, a majority of which include first and second liens.
Two years ago, GE bought the U.K.-based CMC Mortgage, changing its name to IGroup.
According to GE-UK spokesman Ivan Royle, the company services about $12 billion in product. Once the FN deal closes, the group will have almost $20 billion in receivables.
In 1997 and 1998, GE was contemplating several high-profile subprime acquisitions in the U.S., but never closed on any.
U.S. firms that GE looked at include The Money Store, United Companies and Green Tree Financial, to name a few. And lucky for GE. The Money Store was eventually bought for $2 billion by First Union, Charlotte, N.C., which in time wrote off the entire value of the deal.
Green Tree was sold for $7 billion to Conseco, which sunk into bankruptcy, thanks mostly to the ailing condition of Green Tree's manufactured housing lending division. United Companies went bankrupt, a victim of gain-on-sale accounting and other problems.
In other words, GE dodged a bullet in the U.S. by not purchasing any subprime firms here. In late 2000, the company also exited the 'A' paper servicing arena in the U.S., selling its Cherry Hill, N.J.-based mortgage unit to Wells Fargo Bank, San Francisco.
But Mr. Royle told Mortgage Servicing News that GE likes the U.K. subprime business very much.
"The (profit) margins are better over here," he said. "It's a good business and it's a growing business for us."
He also said GE will consider future acquisitions in Europe. "If opportunities come up, we'll consider them," he said.
Mr. Royle noted that banks are the biggest players in the consumer finance arena in the U.K. "It's very competitive but we've carved out a niche for ourselves," he said.
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