Monday, March 10, 2008

What about SWFs?

Last week a couple of readers pinged me via the Skribit widget on this blog to ask what impact Sovereign Wealth Funds might have on the mortgage technology space. Recently, Mark Dangelo and I completed work on a second industry sector report for the mortgage business where we focused a bit of our attention on SWFs and their anticipated impacts on the US financial services industry. You can find out more about that here and here. But will those impacts filter down to the technology suppliers that serve lenders?

I am currently working on a feature story that I hope will appear in an upcoming issue of Mortgage Banking about tech firms in this space that may be for sale or in play. I'll be poking around at the Mortgage Banker's Association's Technology in Mortgage Banking conference next week for that and welcome any tips or information you care to share with me (on or off the record). While I expect to find a number of players that wouldn't mind being adopted, I'll be surprised to find SWFs filling too many tables at the mixers.

My feeling is that most tech players, with the possible exception of some brands held by the F companies (Fidelity, First American and Fiserv) are probably not big enough fish to attract the attention of these buyers. I doubt these investors know or understand much about that part of our business and if they take only a precursory look they'll see maturing technologies (in that much of our software hasn't been fully Web-enabled for long and we're not even doing electronic documents on a production scale yet) in a rapidly shrinking market (hundreds of lenders out of business in the past 18 months, and now lenders with extremely low delinquency and default numbers like Thornburg are under the gun) with little capacity to expand into other lines of business. I don't see a lot of foreign funds making that kind of an investment.

The exception, of course, would be China, who would love to have access to technology that would stream US financial data across its dashboards like a heads-up display on its World Domination Machine. But don't get me started.

I expect any parties interested in acquiring these assets will probably come from a competing firm or from a domestic bank. Mortgage lenders are not likely to be buying much these days.

But I don't think it will be the biggest institutions. That group learned a lot from BofA's acquisition of Framework, Tarrytown, NY. Probably mid-tier banks or other tech companies funded by domestic venture capital (of which there is plenty right now). I'll continue to work on the story and let you know what I find.

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