Fremont to sell unit, change leadership
Fremont General Corp., a lender that regulators forced out of the sub-prime mortgage business in March, said Tuesday that it would sell its commercial real-estate loan business and bring in a high-profile new team of investors and managers to run the company.
Santa Monica-based Fremont said real estate investment trust IStar Financial Inc. would pay $1.9 billion for the commercial loan business and a 30% stake in an associated $6.5-billion loan portfolio. Fremont would earn interest on its remaining 70% stake in the loans.
Fremont’s stock rocketed 41% on the news.
New York-based IStar, a commercial loan investor, pledged to retain most of the 166 employees of the commercial business, which is part of Fremont General’s bank subsidiary, Fremont Investment & Loan. The Santa Monica-based commercial arm has nine lending offices nationwide, including one in Irvine.
The new management group is headed by Gerald J. Ford, a billionaire specialist in bank turnarounds who plans to invest $80 million as a first step toward eventually acquiring 20% of Fremont General’s common stock.
Ford will become chairman of the parent company and Brea-based Fremont Investment & Loan, which was sunk by defaults on home loans to high-risk borrowers.
The Federal Deposit Insurance Corp., accusing Fremont of taking too many risks, ordered the company in March to quit making mortgages that sub-prime borrowers couldn’t afford and to cease operating with management whose “policies and practices are detrimental.”
Regulators also criticized Fremont Investment’s commercial real estate operation, saying it was too concentrated in loans for apartments being converted to condominiums.
Fremont’s current management, headed by Chief Executive Louis J. Rampino, declined interview requests. In a statement, Rampino called Tuesday’s news “a major turning point for Fremont General.”
“The transaction with IStar allows us to exit our existing commercial real estate lending business while retaining an earning asset that provides a bridge to the development of new lending businesses,” he said. “The investment led by Mr. Ford will provide part of the foundation to building these new businesses.”
Ford said he would refocus Fremont on conventional consumer and commercial lending, making it a “very traditional bank” like those he has operated in the past.
Depositors at Fremont’s 22 branches in Southern California and the Central Valley will be unaffected and remain insured by the FDIC for as much as $100,000 per account and $250,000 on retirement accounts, Fremont said.
Ford began his career in the 1970s, buying and merging rural banks in Texas. In the 1990s, he acquired and consolidated some of California’s largest savings and loans: First Nationwide Bank, Glendale Federal Savings and California Federal Bank.
He and a group including Ronald Perelman, the billionaire New York investor, sold the resulting company, Golden State Bancorp, to Citigroup Inc. in 2002 for $5.8 billion.
Perelman is not part of the Fremont General deal, which Ford described as potentially the first in a new series of takeovers.
“We’ve always been pretty acquisition-minded over the years,” Ford said in a telephone interview. “We’d be looking for potential acquisitions wherever they might turn up.”
Two associates of Ford at Golden State will hold the top Fremont management positions: Carl B. Webb as CEO and J. Randy Staff as finance chief.
In return for its $80-million investment, the Ford investor group will receive preferred stock in Fremont Investment & Loan and warrants to buy 7.1 million shares of Fremont General common stock at $8.44 a share over the next 15 months.
With shareholder approval, the group also will receive warrants to buy an additional 4 million shares at $9 a share for a total of 11.1 million shares, which would raise its stake in Fremont to 20%.
Fremont quit writing new sub-prime residential loans in March and gave two-month layoff notices to most of the unit’s 2,400 employees.
The company also disclosed Tuesday that the buyer of its portfolio of sub-prime mortgages was hedge fund Ellington Capital Management, a large trader in mortgage-backed securities that has been buying up assets of failing sub-prime lenders.
Fremont’s shares surged $2.89 to $10. IStar Financial climbed $1.79, or 3.9%, to $47.60.
