Computershare, the provider of share registry and employee share plan services, is selling its troublesome mortgage services business in the US to asset manager Rithm Capital for $US720 million ($1.13 billion).
The sale of CLS comes just after the business returned to profitability in the six months ended June 30 in a highly competitive market where it had suffered from lower refinancing volumes and weaker mortgage originations.
Computershare said on Tuesday the sale of CLS to Rithm would result in a one-off, statutory pre-tax loss on the sale of between $US150 million to $US180 million. The impairment will not affect its underlying cash flow.
Computershare gained 0.7 per cent in early trade to $26. Shares have risen by about 27 per cent since late March when it was trading at $20.52.
What the main players say
Computershare CEO Stuart Irving said Rithm had the capital to be able to expand the business, and it should be a smooth transition.
“Rithm has strong mortgage industry credentials and the ability to bring capital to scale the business further,” Mr Irving said.
Mr Irving said the sale was part of a simplification strategy where Computershare would put more investment into its core businesses of managing share registries, employee share plans and corporate trusts. “The divestment of [CLS] allows us to focus our efforts on our core businesses which have high levels of recurring revenues, long-term growth runways, low capital intensity and attractive returns through the cycle,” he said.
Rithm chief executive Michael Nierenberg said his company had a strong track record of adding value from acquisitions. “Our track record of acquisitions in the mortgage servicing space continues to deliver value not only for our shareholders, but also for the millions of consumers we serve,” he added.
By the numbers
Computershare has been trying to lift the performance of CLS with a vigorous cost-cutting program. The transaction values the business at around its tangible net asset value. CLS revenue in the last financial year slipped to $351 million from $423 million. It suffered a $3.7 million loss in earnings before interest and tax in the 12 months ended June 30.
Rithm has $US34 billion in assets under management across the real estate and financial services sectors. Rithm said the acquisition includes $US136 billion in unpaid principal balance of mortgage servicing rights, of which $US85 billion is third-party servicing. Once settled, a Rithm company called Newrez will oversee the mortgage servicing business.
Computershare is still weighing up strategic options for its mortgage services business in the United Kingdom, which has about one-third the annual revenues of CLS.
The US business has 770,000 loans on its books which the company either fully owns, part owns or has sub-servicing arrangements in place.
Computershare listed on the ASX in 1994 and first expanded into the US in 2000. That market generated 69 per cent of Computershare’s total earnings in the last financial year. Its share registry business has been curtailed in the past 12 months by a weak global market for initial public offerings.
Source : Afr