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It’s a bit strange that on the same day the Dow dropped 200 points because of interest-rate worries Deutsche Bank AG decided to buy a California mortgage originator.
Germany’s largest bank said Wednesday it would buy Chapel Funding LLC of California for an undisclosed price and use the mortgage origination business to develop its mortgage-backed securities business in the U.S. Funny thing is, the announcement came on the same day that the Dow Jones Industrial Average fell 214.28 points, or 1.9%, to 11,205.61 — its biggest drop since March 2003. The reason for the selloff was the Labor Department said early Wednesday the consumer price index rose 0.6% in April, above economists' forecast, for an increase of 0.5%. The announcement pointed to higher interest rates, which could hinder the business of a mortgage originator, as higher mortgage rates dampen the affordability of homes. Seattle-based Washington Mutual Inc., for example, is one of the country’s largest mortgage lenders, and its shares have been trading in a $38-$46 band for two years. The company has been scrambling to diversify away from a mortgage-and-deposit business, buying San Francisco-based credit card issuer Providian Financial Corp. for $6.5 billion last year and agreeing last month to buy commercial lender Commercial Capital Bancorp of Irvine, Calif., for $983 million. The difference with Deutsche Bank is its main business in the U.S. is investment banking and securities, and it sees some upside in developing an asset-backed debt business based on residential mortgages. Unless the housing market falls off a cliff, it should be able to make money based on its ability to structure and sell the issues, rather than just lend money to homeowners. Merrill Lynch & Co., Morgan Stanley and Lehman Brothers Holdings Inc. have also recently expressed interest in buying mortgage businesses, and Merrill was reportedly one of the banks interested in buying New York-based North Fork Bancorp, which eventually went to Capital One Financial Corp. It’s a strategy different than the last European bank to dive into the West Coast banking market. Paris-based BNP Paribas SA, which replaced Deutsche Bank this decade as the euro-zone bank with the largest market cap, has been building up its Honolulu-based BancWest Corp. unit through a series of acquisitions, largely in community banks. The bank has done a deal a year for a decade and a half, and in 2004 paid $1.2 billion for Fargo, N.D.-based Community First Bankshares Inc. and $245 million for USDB Bancorp of Stockton, Calif.—Peter Moreira CategoriesComments
From: Adil Khan,
The purchase makes sense. With a powerhouse rating they will borrow at excellent rates, and like GE Capital, place the funds in the ABS real estate market without booking the loans in their general account. DB is always known to be wholesale player. Has anyone recently asked for a price on their bond inventory. Very thin spreads.....
Posted on:
May 19, 2006 1:38 PM
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No big surprise there. We have a trade deficit which means foreigners have dollars they need to spend. If they don't buy US goods they have to buy US assets.
And looking back in history, name one time foreign buyers got a good deal on US assets. They always seem to buy at the peak. (Pebble Beach, Rock Center, T-Mobile USA, Chrysler, Vivendi-Universal...) Then later US buyers buy them back cheaper.
Its the simple economics of how trade deficits rebalance. In order to keep buying their goods we have to make profits when we trade our assets with them.