Morgan to buy mortgage firm

NEW YORK: Morgan Stanley on Wednesday said it agreed to acquire residential mortgage lender and service company Saxon Capital for $706m as the largest US investment bank looks to catch up with rivals that have bigger, integrated mortgage businesses.

New York-based Morgan Stanley said it will pay $14.10 a share in cash for Saxon stock. That’s a 29% premium to Saxon’s $10.97 closing price on the New York Stock Exchange.

Morgan Stanley said Saxon, based in Glen Allen, Virginia, will expand its ability to service mortgage accounts, improve risk management and generate loans to individuals with less-than-prime credit scores. Pending regulatory and shareholder approvals, the deal is expected to be completed by the end of this year.

Saxon was the 14th-largest non-prime mortgage servicer last year, handling accounts representing $26bn in loans. The company, which also buys and originates loans, held $6.5bn in mortgages in its portfolio as of March 31.

Separately, Saxon on Wednesday said second-quarter profit rose 23% to $8.6m, or 17 cents a share. Servicing income in the period rose 19% to $20.4m.

Residential home loans underpin the largest segment of global debt markets and in recent years have helped fuel record profit for leaders such as Lehman Brothers Holdings, Goldman Sachs Group and
Bear Stearns.

Lehman and Bear, in particular, snapped up small mortgage businesses that generate loans that could be packaged into bonds, then issued and traded. This top-to-bottom integration offers dealers wider profit margins and better insight into mortgage markets.