Rithm Capital, with acquisitions in the pipeline, has indicated a significant transaction by year-end, bolstering its ambition to emerge as an asset management frontrunner.
Amid the media spotlight and competing bids surrounding its endeavor to acquire hedge fund Sculptor Capital Management, Rithm has also penned an agreement to buy servicing assets from Australia's Computershare in Q3 for approximately $720 million. This aligns with Rithm's foundational footing in home lending. Recent acquisitions, however, signify a potential strategic pivot that might lead to a mortgage unit spinoff.
"We're not giving up on the mortgage company," said Rithm CEO Michael Nierenberg, who added that Rithm was looking for ways to cut expenses, particularly in its retail channel, "because that business really doesn't make any money right now."
Highlighting the company's vision, Nierenberg mentioned the acquisitions are steps "toward being a top-tier global asset management entity."
Although Rithm's bid for Sculptor faces challenges, Nierenberg underlined the vital role of its real estate segments, especially as parent to home lender Newrez. He reaffirmed the significance of their foundational businesses, stating, "These core sectors are imperative for our company's future trajectory."
While emphasizing Rithm's commitment to the mortgage segment, Nierenberg also mentioned their intent to prune costs, especially in its retail sector, which is currently underperforming.
The acquisition of Computershare's Specialized Loan Servicing unit is part of Rithm's evolving strategy, adding a substantial $136 billion to their portfolio, emphasizing third-party servicing worth $85 billion. This deal is projected to be finalized in the first quarter of next year.
In the context of a potential U.S. economic downturn, Nierenberg expressed confidence in Newrez's ability to effectively assist homeowners and consumers.
For Q3, Rithm announced profits primarily due to servicing that thrives on higher interest rates. The quarterly adjusted net income was $193.9 million, a decline from the previous quarter but a jump from the previous year. Revenues reached $1.1 billion, showing growth from Q2 and year-over-year metrics.
Inside Newrez, servicing activities contributed $365.5 million to the net income, showing consistent growth from previous quarters. Meanwhile, the originations sector reported a net loss, impacted by the surge in mortgage rates this year. Nevertheless, funded production volume saw growth, and the gain on sale margins showed improvement.
Foreseeing challenging times ahead for the originator business with rising mortgage rates, Nierenberg said he remains cautiously optimistic.
