INVESTMENT BANKS HAVE rushed to buy subprime platforms this year. Merrill Lynch bought a mortgage unit called First Franklin for $1.3 billion, and Morgan Stanley purchased Saxon Capital for $700 million. European banks have jumped on the subprime bandwagon; this summer Deutsche Bank paid $429 million for Mortgage IT and Barclays Capital paid Wachovia $469 million for HomEq Servicing.
It appears to be a logical, if somewhat belated, reaction to the runaway success Lehman Brothers and Bear Stearns have enjoyed in their fixed-income franchises from having integrated mortgage origination businesses. And yet the very fact that, for first time in many years, subprime platforms are in play indicates that opinions are mixed on the future for mortgages.
“The reason the investment banks are so interested is that franchises are actually on the market and they’ve seen the success of the people that were out in front of the curve,” says Michael Poulos, director, North American banking practice, at Mercer Oliver Wyman. “All the players are saying ‘this is a big part of the market, we like the securitization business and we need to be able to deliver this product to our fixed-income investors.