Rumors are swirling today that a major Wall Street-based bank is planning a surprise purchase of the United Kingdom’s largest subprime lender, London-based Kensington Group, PLC. UK-based The Mail first reported the potential sale this past Sunday, and the company issued a brief statement this morning confirming what it called “third party interest in the business,” although Kensington would not confirm if negotiations with a particular bank were ongoing. Wall Street has recently moved into the UK subprime market. New market participants there include Bear Stearns, Deutche Bank and Lehman Brothers, and industry analysts told various news sources in the UK this morning they expect one of the three to purchase Kensington in the days ahead.
Wall Street financial institutions have been hit hard by the slowdown in the U.S. housing market, particularly in the subprime credit sector as of late. Merrill Lynch is one such firm that has quickly been retrenching its subprime investment strategy. Industry sources have suggested to Housing Wire that Wall Street is now actively looking to economies outside the U.S. to find new sources of capital for subprime securitizations, and the United Kingdom represents an attractive market given the significant growth in subprime fundings within the country during the past five years. “It’s diversification,” said one industry source. “Wall Street wants to limit its exposure to downturns in any one particular economy, and right now they need to try to find new sources of subprime mortgages to offset losses in the U.S. market.” As of November 30, 2005, Kensington had lent to more than 126,000 subprime borrowers throughout the United Kingdom and Ireland. The company’s stock was up more than 15 percent on the London Stock Exchange on news of a potential purchase as of HW’s publishing deadline Monday.