Rithm Capital Considers Separating Mortgage Business to Boost Stock Performance
2023-07-30
Top executives, analysts, and other important individuals gathered for a meeting to discuss the future plans of the company. The main focus of the meeting was the potential separation of the mortgage business into a separate public entity. This strategic move, proposed by the company's President, Chairman, and CEO, Michael Nierenberg, aims to diversify the company's business model and potentially improve the trading performance of its stock.
Despite consistent earnings and a 12% growth in book value over the past two years, the company's stock has been trading poorly. Nierenberg believes that by creating a public entity for the mortgage business, it could attract more investors and potentially boost the stock's performance. This separation could also position the company as one of the larger players in the alternative asset space, as they express interest in expanding their presence as an asset manager, operating companies, and funds business.
However, decisions still need to be made regarding the structure of the separate entity and whether to move all the mortgage servicing rights (MSRs) assets with it. These considerations will impact the overall strategy and potential outcomes of the separation.
In summary, the potential split of the mortgage business into a separate public entity presents an intriguing opportunity for the company to diversify its business model, improve stock performance, and expand its presence in the alternative asset space. The final decisions on how to structure the entity and handle the MSRs assets will be crucial in determining the success of this strategic move.
The market outlook for the company is positive and optimistic. They are excited about the opportunities in the mortgage industry, particularly in distressed properties and development deals in the commercial real estate space. The company anticipates that delinquent loans will be released over time, providing further opportunities for capital deployment. They are also exploring opportunities in consumer, real estate, residential, and commercial sectors where they believe there are high returns on equity.
To capitalize on these opportunities, the company has launched a multibillion-dollar fund called Rithm Asset Opportunities Fund, with a focus on financial services. They are confident in their ability to raise large pools of capital and expect a first close in late Q2 or early Q3 for the fund. Overall, they are looking forward to another good quarter of performance and growth as they expand into new sectors.
The company's plans for product and service include creating other pools of liquidity, raising significant capital, addressing the undervaluation of their stock price, implementing a stock buyback program, maintaining a stable book and growing earnings, taking advantage of opportunities in the marketplace, expanding their offerings and operations through acquisitions, and continuously evolving and growing their business model.
The competitive landscape is evolving, with increased competition in the distributed retail channel and a focus on market share acquisition.
The company's outlook for the quarter and year appears to be positive. The CEO expressed excitement about potential opportunities that could result in a 15% to 20% increase in returns. They also mentioned their focus on private capital management and efforts to raise funds for a multibillion-dollar fund. The CEO expressed optimism about the potential for success in raising capital and deploying it in asset strategies. Overall, the company seems hopeful about the future and expects growth in their business.
Significant progress has been made on the company's strategic initiatives. They are planning to file an S-1 to create other pools of liquidity and diversify their business model. They anticipate raising significant capital and have implemented a stock buyback program. The company has also expanded through acquisitions, launched a private credit business, and entered the European market. Overall, the company has demonstrated real growth and strategic development in its business.
The participants of the call discussing the company's financial matters included Emma Bolla (Associate General Counsel), Michael Nierenberg (President, Chairman, and Chief Executive Officer), Bose George (Keefe, Bruyette and Woods - Analyst), Eric Hagen (BTIG - Analyst), Nick Santoro (Chief Financial Officer and Chief Accounting Officer), Doug Harter (Credit Suisse - Analyst), Giuliano Bologna (Compass Point Research and Trading - Analyst), Henry Coffey (Wedbush Securities - Analyst), and Trevor Cranston (JMP Securities - Analyst). This diverse group of participants, including company executives, legal counsel, and financial analysts, likely provided valuable perspectives on the company's financial performance and future prospects.