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Morgan Stanley Acquires Nonprime Servicer

Morgan Stanley has announced the acquisition of Saxon Capital Inc., the 14th largest nonprime mortgage servicers in the US last year.



The $706 million acquisition is made in an effort to keep up with competitive companies that have larger, integrated mortgage businesses.



Top-to-bottom integration in the mortgage business is seen as offering wider profit margins and better insight into the markets. Since 2001, Morgan Stanley has build up its mortgage business, yet it still faces tough competition by rivals such as Lehman Brothers.



Morgan Stanley announced that it will pay in cash $14.10 a share for Saxon, a 29% premium to Saxon'ss closing price of $10.97 on Tuesday'ss New York Stock Exchange.



Morgan Stanley shares dropped 1.6% to $65.34 after the announcement. The fear appears to be that the purchase is occuring during a downturn in the mortgage market.



Morgan Stanley has made plans to aggresively pursue mortgag acquisitions both in the US and abroad. The company is actively hiring managers to run the mortgage busines, including a recently hired Countrywide Financial executive to build the European mortgage business for the company.



Saxon handled accounts last year standing for $26 billion in loans. As of March 31, the company had $6.5 billion in its mortgage portfolio. Saxon earned $111 million last year and reported earnings of $35 million for the first half of 2006.



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