Long Beach Financial Is Latest Takeover Target

Long Beach Financial Corp., a fast-growing mortgage lender catering to borrowers with bad credit, has become the latest takeover target in the rapidly consolidating home loan industry.

Analysts said Tuesday that Washington Mutual, the nation’s largest thrift, appears to be mulling a purchase of the Orange-based company, which they said could cost between $318 million and $380 million.

Speculation about a possible sale also was published Tuesday in the industry newspaper American Banker.

Officials at both companies declined comment.

In an interview last month, Long Beach Financial Chairman M. Jack Mayesh said the company was not actively seeking a buyer and had recently adopted a shareholder-rights plan to discourage a hostile takeover.

But Mayesh confirmed that the company has been receiving inquiries about whether it is interested in selling.

“I get that question a lot,” he said. “At the right price, we’d have a fiduciary duty to consider it.”

Washington Mutual is known to have a strong interest in California. Over the past 2 1/2 years, the thrift has acquired some of the state’s largest financial institutions, including Great Western Bank and Home Savings & Loan.

Long Beach Financial has 866 employees nationwide, including about 400 in Orange County.

Wall Street seemed unimpressed by the latest takeover speculation. The stock closed Tuesday at $12.31 a share, up 19 cents.

But since the takeover rumors began to circulate in April, Long Beach Financial’s stock is up nearly 45%.

A purchase by Seattle-based Washington Mutual would be further evidence of the growing interest by traditional banks and thrifts in the risky but profitable business of making loans to borrowers with credit problems, a practice known as subprime lending.

Late last year, Minneapolis-based U.S. Bancorp acquired a 19% stake in Long Beach Financial’s rival, New Century Financial Corp. in Irvine.

“Banks are getting into this business because of the yields,” said Charlotte Chamberlain, an analyst at Jefferies & Co.

Because loans to borrowers with poor credit carry higher interest rates and fees, they are more profitable to lenders.

The purchase of Long Beach Financial would mark Washington Mutual’s first foray into the business of making mortgages to borrowers rated as credit risks, Chamberlain said.

Long Beach Financial is one of the few independent lenders to have survived the recent liquidity crunch in the subprime industry.

That squeeze began last fall when investors such as banks, pension funds and insurance companies lost interest in buying the high-risk loans.

Many of Long Beach Financial’s peers have since gone out of business, declared bankruptcy or been acquired by larger financial institutions.

Long Beach Financial has been one of the most profitable subprime lenders.

During the first quarter, the company said, its loan production rose 53% to $752 million.

Earnings rose 20% to $6.5 million.