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Paragon buys up the Britannic mortgage section.

Byline: Richard Tyler

Buy-to-let specialist Paragon yesterday acquired Britannic's mortgage business for substantially less than the initial asking price.

Britannic Money's pounds 2.2 billion of loans will move across to Paragon for pounds 18.7 million in cash, leaving Britannic sitting on a pounds 25 million loss before the cost of selling the business.

Analysts had pencilled in a broad range of prices, from pounds 25 million to pounds 60 million, for the loss making business that had cost Britannic pounds 112.7 million to buy from First Active, the Irish bank.

Nigel Terrington, Paragon's chief executive, said: 'We were pleased with the price'.

He said while the credit quality of the loans was 'excellent', with low arrears and a conservative loan to asset value, the weakness in the business was on the current account mortgage loans, which make up pounds 1.3 billion of the loan book.

'The difficulty is that the margins on the current account mortgage business are too narrow,' said Mr Terrington.

'What we will instigate is an early strategic review of that aspect of their business.'

Paragon has three options: to run the current account business down, to sell it or to partner with a broader product provider, with Paragon finding customers and issuing the loans but benefiting from a share of profits from cross-selling the customer other financial services products.

The pounds 900 million of buy-to-let mortgages will be rebranded as the Mortgage Trust and continue to market to the mid-market in this sector, representing landlords with between three and ten properties.

Paragon currently concentrates on the professional landlord, with 11 or more properties.

'This will broaden our reach in the buy-to-let sector,' said Mr Terrington.

Britannic said Britannic Money was no longer core to the business and the cash would be used to bolster shareholders retained capital within the Britannic Assurance Life Fund -the money attributed to shareholders when the fund distributed some of its surplus cash in 1997.

Britannic said its free asset ratio -a regulatory measure -now stood at 6.7 per cent before including any non-liquid assets and its with profit fund had reduced its exposure to equities from 42 per cent at the start of the year to the industry norm of 30 per cent.

Paul Thompson, chief executive, said he was happy with the price obtained for Britannic Money and his team would begin renegotiating the group's long terms debts and assessing whether to reinstate dividend payments and bonuses.

Shares closed up 4p at 244p and Paragon's up 5p 281 1 /2p .
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Jul 1, 2003
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