WASHINGTON (Reuters) - Merger talks have ended between the U.S. Federal Home Loan Bank of Dallas and its sister bank in Chicago, they said on Monday, after more than eight months of talks to partner the lenders, which specialize in home mortgages.
By Patrick Rucker
WASHINGTON (Reuters) - Merger talks have ended between the U.S. Federal Home Loan Bank of Dallas and its sister bank in Chicago, they said on Monday, after more than eight months of talks to partner the lenders, which specialize in home mortgages.
"We have been unable to reach a definitive agreement with the Chicago Bank regarding the terms of a merger," the Dallas bank said in a statement.
In a separate statement, the Chicago bank announced the resignation of its president and chief executive officer, Mike Thomas.
!ADVERTISEMENT!The two banks are part of a network of 12 regional mortgage lenders chartered by the U.S. government to bring discount credit to home buyers.
The banks announced in August that they were in merger talks aimed at increasing efficiencies. Both lenders have been squeezed in recent years by increased regulatory scrutiny and consolidation in the lending sector.
They have also been shaken in recent months by general woes in the mortgage finance sector spurred by rising foreclosures. Although the home loan banks' mortgage holdings are relatively safe, their business has been roiled by the turmoil in the U.S. mortgage-backed securities market.
"That the home loan bank MBS are mostly rated AAA is no comfort, as all the write-downs at other investors make clear," said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington.
Instability in the mortgage finance sector might have helped doom the merger bid as much as the cumbersome nature of the home loan bank structures, said Jim Vogel, analyst at FTN Financial in Memphis, Tennessee.
"The cooperative management/ownership structure is not conducive to merger/joint activity to begin with," he said.
The Federal Home Loan banks are regional banks held cooperatively by more than 8,000 lending institutions. The government-sponsored enterprises enjoy a favored position in the capital markets because of their implied government backing.
While the system was designed to aid smaller lending institutions, the regional banks rely heavily on the business of their largest members, which can be swallowed up by other banks or are big enough to find alternative sources of cheap funds.
In September, the Chicago bank was warned that its capital reserves were becoming thin and that it should be careful as it considered redemptions to its shareholder members. The Dallas bank also has faced capital concerns in recent years as its largest members have left the system.
In late March, the banks were authorized to boost their holdings of Fannie Mae and Freddie Mac securities by $150 billion. The move was expected to add liquidity to the mortgage finance markets.
(Additional reporting from Joseph A. Giannone in New York; Editing by Dan Grebler)
