Ryland may sell financial unit

October 21, 1994|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

In an effort to further focus on its core homebuilding business, the Ryland Group Inc. is considering selling its institutional financial services division, the company announced yesterday.

The division maintains a portfolio in excess of $46 billion, ranking the Columbia-based firm as one of the nation's largest private-issuers of mortgage-backed securities, which include real estate mortgage investment conduits, builder bonds and pass-through securities.

But the Ryland Mortgage Co. subsidiary, despite having issued $43 billion in mortgage-backed securities since its formation in 1982, doesn't generate large revenues and earnings for the parent company.

Ryland has retained New York investment house Dillon, Read & Co. Inc. to evaluate and market the division. Although company officials have indicated that any sale would be contingent on receiving a fair value for the division, they declined to specify either a fair value or a reserve price for the division.

"They have a black-box technology because the mortgage-backed securities business is so complex and requires specialized systems," said one Dillon Read official. "Entry into the business is very difficult."

If the division is sold, it is likely to be purchased by one of Ryland's competitors in the mortgage-backed securities industry, which include Bankers Trust Co. and State Street Bank & Trust Co.

"The sale is in line with their overall strategy, and while that end of their business has been profitable, looking forward it's clear that it's not as important to them as homebuilding," said Ivy Schneider, a Salomon Bros. Inc. housing analyst who tracks Ryland.

The decision to explore shedding the division is the latest initiative by Ryland Chief Executive R. Chad Dreier to emphasize residential building and mortgage finance, which the company believes represents its best path for future profitability.

"The sale of institutional financial services supports that effort by allowing us to concentrate on and invest additional capital into those operations," said Mr. Dreier, who became the company's president and chief executive in November 1993. He declined further comment.

Ryland, the nation's third-largest homebuilder with more than $1 billion in annual revenues, constructed 8,319 new homes last year. Through Sept. 30, it has built 7,387 residences. The company has built more than 120,000 homes in its 27-year history and operates in 18 states.

Earlier this year, it completed the acquisition of Scott Felder Homes, a $100 million builder based in Dallas.

In the first six months of 1994, Ryland generated a net income of $13.8 million, or 81 cents a share, on revenues of $749.2 million. The net income and revenue figures represented a 12 percent gain from the previous comparable period.

Institutional financial services reported $5 million in pre-tax earnings in the first half of 1994, accounting for roughly one-fifth of Ryland's overall financial services income.

Institutional financial services has 150 employees in Columbia and Richmond, Va., representing less than five percent of the company's work force.

Mr. Dreier's efforts occur against a backdrop of relatively sluggish earnings at Ryland.

Homebuilders such as Centex Corp. and Pulte Homes Corp., the nation's No. 1 and No. 2 builders, respectively, have managed to rebound by consolidating and focusing their businesses, analysts said.

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