FMB set to sell mortgage loan firms in the US

AIB's US subsidiary, First Maryland Bancorp, is to sell two of its mortgage loan businesses to the Cleveland-based National City Mortgage company. The bank yesterday refused to disclose the financial terms of the deal but has indicated the two businesses, First National Mortgage Corp (FNMC) and Eastern Mortgage Service (EMS), are being sold for approximately their book value.

While the two businesses were substantial, generating home loans of $1.6 billion in 1997, they had failed to generate significant profits for the bank, operating on a break-even basis in recent years. AIB chief financial officer, Mr Declan McSweeney, said that as both FNMC and EMS operated with a very high cost base, the sale will be broadly positive for FMB, improving its cost to income ratio.

The transaction follows the sale of its loss making US credit card operations earlier this year. Mr McSweeney said the latest agreement had been reached with National City Mortgage following a review of its home loan operations in the light of the merger of its FMB and Dauphin subsidiaries in the US.

"FNMC and EMS were breakeven businesses and had never made a positive contribution to AIB's US earnings. We are pleased to have negotiated a sale while the business is not losing money and will allow the bank to focus on the more profitable areas," Mr McSweeney said.

FMB will, however, continue to offer mortgage and credit card services for its customer base through its branch network, he added.

The home loan book businesses to be sold are a very different type of operation from AIB's day to day mortgage operations in the Irish market. FNMC and EMS both originated home loan business throughout the US which were then sold on to investors and specialist institutions, earning a modest margin for the bank.

This market has, however, increasingly become dominated by a number of bigger players, a factor which has greatly reduced the margins earned by the AIB subsidiaries.

FNMC and EMS between them employ around 1,000. No firm decisions have been taken in terms of how many staff will be retained by National City Mortgage and FMB but there are expected to be some job losses following the acquisitions.

First Maryland Bankcorp is the holding company for First National Bank of Maryland, Dauphin Deposit bank, the York Bank and First Omni Bank. It has its headquarters in Baltimore and operates 300 branches from southern Pennsylvania through Maryland into Northern Virginia. FMB has assets of approximately $17.3 billion.