SETTLING DOWN IN THE '90s High-flying man of the '80s heads area mortgage firm


In case anyone is not yet convinced, the '80s are over, and proof positive can be found in David J. Gallitano, who this month led a management buyout of Columbia- based PaineWebber Mortgage Finance Inc.

During the go-go years of the last half of the decade, an era ruled by men author Tom Wolfe called "masters of the universe," Mr. Gallitano spent his time crafting leveraged buyouts for one of Wall Street's biggest investment firms, PaineWebber Inc. He found white knights to dodge hostile takeovers, fixed ailing companies all over the country and liquidated broken ones.

Mr. Gallitano, a man who serviced nuclear missiles for four years in the Air Force ("real Dr. Strangelove stuff," he laughs), bought and sold assets worth billions in the '80s, laid off thousands of people, found the money to help companies grow and hire thousands more and spent little time at home.

But now it's the '90s, and Mr. Gallitano, 45, is settling down. He plans to spend the rest of the decade working in Columbia, running one of the area's largest mortgage companies and flying his Beech Baron twin-engine plane on the weekends for fun (OK, so you can't take the '80s out of the boy completely).

Two weeks ago Mr. Gallitano -- who was an executive vice presi dent at PaineWebber -- and a group of managers at PaineWebber Mortgage Finance (PMF) announced they had bought the mortgage company from its New York-based parent. They did it with the backing of Merrill Lynch Capital Partners, a $1.9 billion institutional investment fund managed by a subsidiary of the well-known securities firm.

PMF has about 450 employees -- 150 at the headquarters in Columbia -- and some 25 offices along the East Coast and in the Midwest and Texas. Founded as a unit of the Rouse Co. in 1939, PMF was sold to PaineWebber in 1984. It originates and services mortgage loans and runs a $185 million real estate investment trust.

The company services some $6.7 billion in loans, including $3 billion in commercial mortgages. Last year it originated almost $1.3 billion in residential mortgages, and it already has reached half that amount so far this year.

This month's deal represents the second time Mr. Gallitano has ended up as chairman and chief executive of the company. Almost a decade ago he helped save its life.

To the rescue

A graduate of George Washington University with an master's degree in business administration from the University of Chicago, Mr. Gallitano had spent seven years with Chicago-based management consultants McKinsey & Co. Inc. In he was hired to run General Electric Credit Corp.'s mortgage insurance company in Raleigh, N.C. A headhunter recruited him to PaineWebber four years later.

Not long after Mr. Gallitano joined the company in late 1986, Chairman Donald Marron sent him down to Co lumbia to help fix an unhealthy asset, PaineWebber Mortgage Finance. "When I came down here it was clear that we had an organization that was getting into trouble," he recalls.

The mortgage origination market had declined by 35 percent in less than a year, but PMF inexplicably had been bulking up its staff. Although servicing quality hadn't suffered, productivity definitely had, and costs were skyrocketing.

Living in a rented Federal Hill townhouse, Mr. Gallitano spent a year trying to cure PaineWebber Mortgage's problems. The solution included laying off almost half of the 750 or so employees. "It was very painful at the time," he says. "Clearly there were a lot of people that did not view me as their hero."

Still, by leaving the servicing operations alone and retooling the production side of the business, Mr. Gallitano managed to turn the situation around. The survivors "were very grateful that the company was put back on a healthy footing and that it's still here today." Many of those people still work there, and that should bode well for Mr. Gallitano's support among the ranks as he re turns to Columbia.

The deal he negotiated with Merrill Lynch also should ensure quite a bit more hiring, although not much of it in this area. Merrill Lynch Capital Partners has promised to provide up to $80 million in expansion and acquisition funds over the next few years.

Plans to expand

The company now has offices in every East Coast state from Georgia to Connecticut, several in Ohio and a new beachhead in Texas. Mr. Gallitano says he plans to open eight to 10 offices a year. If several acquisitions now in negotiations are successful, PMF soon could double in size.

What he looks forward to now is devoting his energies to just one company, he says, getting to know the people there and helping to build a successful business over the long term. The goal is to take PaineWebber Mortgage Finance public within four to seven years and make it a completely freestanding company.

(The name, by the way, must go within a year -- part of the agreement with PaineWebber Inc. Employees are vying for a $1,000 prize to come up with the best replacement.)

Looking out his 12th-floor office window above the woods of Columbia, Mr. Gallitano claims he won't miss New York. The Ridgefield Park, N.J., native never spent more than half the year there anyway, and he says he prefers the more manageable lifestyle of the Mid-Atlantic.

He's looking for a new headquarters location where the company can consolidate its space; somewhere a bit closer to I-95 than Columbia's PaineWebber building, which is across from the mall.

With Columbia, "you get a lot of the advantages of a large city -- two cities, actually," he says, adding that he'll probably find a home in Annapolis, so he can do some sailing.

But it's not quite the same as being a 1980s Wall Street investment banker -- the adrenalin rush of closing a monster LBO, being a "master of the universe."

"It was fun," Mr. Gallitano admits with a smile. "But that's history."

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