Fremont Sells Unit Easing Pressure

Mortgage lender Fremont General Corp. appeared to rescue itself from potential seizure by regulators, agreeing to sell most of its investment and loan bank to a commercial finance company.

CapitalSource Inc., of Chevy Chase, Md., agreed to pay a maximum of $198 million to assume about $5.6 billion of deposits from Fremont's banking subsidiary, Fremont Investment & Loan. CapitalSource will also acquire other assets from Fremont, including bank branches and a pool of commercial real-estate loans.

CapitalSource is an eight-year-old real-estate investment trust that specializes in commercial lending. Known for its fast-paced culture -- it caters lunch for employees each day as many stay to eat at the office -- the firm has a diagram on its Web site showing how it can close some deals in 14 days from start to finish. CapitalSource has 560 employees spread across the country.

The deal is subject to approvals from regulators, including the Federal Deposit Insurance Corp. Regulators will likely look closely at the deal as the deposits will continue to be insured by the government. Asked if the FDIC encouraged the acquisition, FDIC spokesman Andrew Gray said, "No, we didn't push the deal."

If the deal is approved, it could help Fremont, of Brea, Calif., comply with an order it received from federal and California regulators in late March to raise new capital and/or sell its banking subsidiary by May 26.

Fremont was one of the 10 top U.S. originators of subprime loans, but sold its subprime division following a cease-and-desist order with the FDIC in early 2007. The proposed transaction "results from an exhaustive effort" made by Fremont and its investment bankers to comply with this latest regulatory order, Fremont said.

Fremont will retain its loan-servicing operations and its residential-mortgage assets.

The emergence of a finance company as a proposed buyer of Fremont's banking assets, rather than a bank or a private-equity firm, reflects growing interest in depositories as funding sources and could set an example as other banks fall into trouble related to the credit crisis.

On a conference call with analysts and investors, John Delaney, CapitalSource's chairman and chief executive, called the deposits "an excellent match with our business," which consists largely of senior secured loans.

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Fremont Sells Unit Easing Pressure