If First Marblehead Corp., the Boston-based private student loan finance company, succeeds in buying Union Federal Savings Bank as it announced last week, there is a chance that it could scale back its securitization program.

The company submitted an application to the Office of Thrift Supervision (OTS) to buy the tiny North Providence, R.I., bank. Union Federal Savings, which is a mortgage lender, has assets totaling $40 million and retail deposits totaling $35 million. First Marblehead did not disclose terms of the potential deal.

"It is not hugely important from a size standpoint," noted William Ryan, an equity analyst at New York City-based Portales Partners. First Marblehead suggested to analysts at Friedman Billings Ramsey that buying Union Federal Savings Bank would allow it to design marketing strategies for its lending partners. It is a risky strategy, wrote Matt Snowling, a Friedman Billings Ramsey analyst, because it would put First Marblehead in a position to compete with some of its lending partners.

Although First Marblehead officials clearly said that it would not hold Union Federal Savings Bank's loans on its portfolio, Snowling wrote, "such a strategy could be viable, as it would allow FMD to build a recurring earnings stream and reduce its dependency on securitizations." In light of First Marblehead's plans to design marketing strategies for its partners, however, scaling back on securitizations might be painful, especially if some of its lending partners break agreements to work with the company, forcing First Marblehead to beef up its portfolio and offset any loss of business.

At any rate, the acquisition might make First Marblehead more vertically integrated and allow it to provide funding lines to various non-lending partners going forward, Snowling wrote. If approved by the OTS, the acquisition could close within six to nine months.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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