GM unit buys part of Bank of N.Y.

$1.8 billion cash purchase allows for pursuits outside of auto-loan business

June 09, 1999|By BLOOMBERG NEWS

NEW YORK -- General Motors Corp.'s finance arm yesterday agreed to buy Bank of New York's commercial finance unit for $1.8 billion in cash to diversify beyond auto and home lending.

Bank of New York said it will buy back about 4 percent of its stock, or 30 million shares, with the estimated $1.05 billion pretax gain from the sale of BNY Financial Corp. to General Motors Acceptance Corp.

Bank of New York shares rose $2.375 to $37.0625. GM fell $1.375 to $67.75.

The finance unit, with 3,000 clients, $26.7 billion in revenue last year and $3.9 billion in assets, lends to North American and United Kingdom companies with annual sales of $5 million or more. Bank of New York, the 16th-largest U.S. bank, will focus on its more profitable businesses of processing securities transactions and helping the rich invest their money.

The acquisition gets Detroit-based GMAC into factoring, or buying a company's accounts receivable and collecting payment on them, and lending to faster-growing companies outside the auto business.

"While auto finance remains our core business, it's a mature business that doesn't grow much, and we've looked at non-auto finance for growth," said William Muir, GMAC's chief financial officer. "The margins on this business are very good" because the small and mid-sized companies BNY Financial lends to don't have the variety of capital-raising choices that larger companies do."

GMAC's revenue from car loans and financing of dealer inventories has held steady between $12.5 billion and $12.7 billion over the past three years. In the same period, GMAC more than doubled its revenue from mortgage banking to $2 billion in 1998.

GMAC had a profit of $392 million in the first quarter, a rise of 12 percent from a year earlier. It earned $1.33 billion in 1998, or 20 percent of GM's total.

BNY Financial will become a new GMAC unit called GMAC Commercial Credit Corp. Current Chief Executive Officer Joseph Grimaldi will become president and CEO of the new unit, reporting to GMAC Chairman John Finnegan. GMAC plans to expand BNY Financial's U.K. business into continental Europe, said Muir.

Bank of New York said the sale, which is expected to close by the end of this month, will reduce earnings by 2 percent to 3 percent this year.

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