Fremont to Sell Banking Ops to CapitalSource; Mortgage Assets Not Included

Troubled lender Fremont General Corp. (FMT: 0.00 N/A) said Monday that it had entered a deal to sell its “substantially all” of the bank’s assets and deposit liabilities to a subsidiary of CapitalSource, Inc. (CSE: 3.49 -0.29%). The deal includes a participation interest in certain previously-sold commercial real estate loans, the assumption of bank deposits and the acquisition of all the bank’s retail branches, Fremont said in a press statement.

Capital Source will pay a 2 percent premium on all bank deposits, and will purchase the bank’s participation interest in previously sold commercial real estate loans at a 3 percent discount; all other assets will be sold at net book value, Fremont said. The deal notably does not include Fremont’s sizeable residential mortgage assets or its mortgage servicing platform — both have been the source of much of the bank’s financial troubles as of late.

Full terms of the deal were not disclosed, although Fremont said it may need a loan of up to $200 million — secured by its servicing advance receivables — in order to close the transaction.

The expected sale comes on the heels of an FDIC order issued in late March, which required the bank to capitalize or sell itself within 60 days. Fremont’s latest round of troubles began in late February, when it said that write-downs and loss reserve charges had eroded its capital base; since that time, Fremont has defaulted on loan purchase contracts worth $3.15 billion and delayed an interest payment on $169 million in debt.

The proposed deal requires FDIC approval, and will require shareholders to approve it as well. Fremont warned that after the deal is complete, it might not have sufficient funds remaining for shareholders or creditors; the warning means that whatever is left over after the deal is complete may be subject to a bankruptcy filing.

Disclosure: The author held no positions in CSE or FMT when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.