FIRST National Building Society is in advanced negotiations to buy the British mortgage subsidiary of Salomon Brothers, the TMC Group, for an estimated £50 million. It is understood that at least one other company is bidding for the business and a deal is expected to be concluded within the next six weeks.
If successful, the TMC (The Mortgage Corporation) acquisition will be the biggest in the building society's history, increasing its asset base by 40 per cent. FNBS senior management has been negotiating to buy the company for almost two months and is believed to be very optimistic that it will be the preferred bidder.
Industry sources have confirmed that FNBS has completed a part due diligence on the TMC business.
The TMC group is a similar business to First National's British subsidiary, Mortgage Trust, which it purchased for £22 million in 1994. With assets of £1.2 billion in securitised mortgages, TMC is twice as big as Mortgage Trust and is understood to carry a price tag of around £50 million. TMC is based close to Mortgage Trust at Woking in Surrey.
Over the past three years, Salomon Brothers has substantially reorganised the business. Analysts say its strategy has been very successful in turning it around and it is today a very strong business.
The group, which is primarily involved in the residential mortgage market, has reduced the number of house repossessions from 1,200 to 60 in that period.
FNBS has stated that it intends to grow its British business and is known to have been actively looking for acquisitions. If its bid for TMC is unsuccessful, it is expected that it will target one of the smaller British building societies.
Last year, Mortgage Trust contributed 20 per cent of the building society's profits. It employs 140 people in Epsom in Surrey. Together with the society's deposit operation in Guernsey, it reported pre tax profits of £3.89 million in 1995.
FNBS has total assets of £2.7 billion. Last year the society, which is the biggest in the Republic, reported pre tax profits of £24 million. It paid out around £100 million in interest to its depositors. At its annual meeting in April the company's chairman, Prof Michael McCormack, said the outlook for the group remained positive.
However, he said the British market had failed to show signs of a "feel good factor" last year. Nevertheless, Mortgage Trust was well positioned to benefit from any upswing in the market.
Last April, First National issued a £55 million bond in a fund raising move. Earlier this year, it hired consultants Performance Management International to advise it on increasing income and improving efficiency.
The company said it was necessary in a competitive market to ensure the future success of the organisation. First National is aiming to bring down its cost/income ratio from a current level of around 64 per cent to 55 per cent over the next few years.
