First National pays almost £51m for the mortgage subsidiary of Salomon

FIRST National Building Society has completed its biggest ever acquisition, purchasing the British mortgage subsidiary of Salomon Brothers, The Mortgage Corporation, for £53 million sterling (£50.9 million). The acquisition, announced yesterday, trebles the size of First National's business in Britain, making it the 11th largest society in the British, market.

Announcing the acquisition yesterday, First National (FNBS) group managing director, Mr John Smyth said he was "very pleased" with the deal. "It's a major acquisition. We're buying a good mortgage book which gives us the critical mass to grow our business in the UK."

Mr Smyth stressed, however, that the acquisition had no implications for any imminent conversion of the society to a publicly quoted company. While the flotation of the company on the Irish Stock Exchange remains and option for the society, he said the purchase would have "no direct impact" on any such decision. "We have enough on our plate at the moment," he said.

FNBS has said it is to pay a premium of £33 million over The Mortgage Corporation's net assets for the business. Industry sources have indicated, however, that certain price adjustments, will be necessary under the terms of the deal which could reduce the final premium paid by FNBS by up to £2 million. The premium price is understood to have been set at a certain date, based con profits at that time with any profits earned after that date accruing to First National.

The acquisition will not affect the society's balance sheet and will be funded out of its own resources, using funds raised in a £75 million Permanent Income Bearing Shares (PIBS) issue more than three years ago. FNBS has also agreed a £250 million sterling credit facility to refinance The Mortgage Corporation's mortgage book. The acquisition reduces its Tier 1 capital from 17 per cent to 12 per cent, still well above recommended guidelines for Irish building societies.

FNBS, the State's largest mortgage lender, has been involved in negotiations to buy the group ford lover nine months. A number of other British financial institutions are also believed to have bid for the business.

The society, which already operates a similar mortgage subsidiary in Britain, Mortgage Trust, plans to merge the two businesses which are located close to each other in Surrey. Based in Woking The Mortgage Corporation group has total assets of £1.2 billion sterling in securitised mortgages and is primarily involved in advancing, servicing and funding residential mortgages on properties throughout Britain.

The company has, however, largely withdrawn from the lending market since 1991, following a decision by Salomon Brothers to rationalise the business. Over the past three years, Salomon has turned it around substantially, reorganising its operations and reducing the number of house repossessions from 1,200 to 60 in that period.

The Mortgage Corporation is twice the size of Epsom based Mortgage Trust, which First National purchased for £22 million in 1994. Mr Smyth said yesterday the society would immediately start working to integrate its two British subsidiaries, which together employ 340 people.

Given the similarities of the two businesses and their proximity to each other, some rationalisation would be inevitable, he added. "There is going to be some overlap, but we will be working on this over the next six to 12 months."

Last year, Mortgage Trust, together with the FNBS's deposit, operation in Guernsey, reported pre tax profits of £3.89 million in 1995. The group reported pre tax profits of £24 million.