Nonbanks are seizing a “generational opportunity” to go public. But who will actually reap the rewards?
On Nov. 12, 2015, traders on the floor of the New York Stock Exchange witnessed the Dow suffer its worst one-day loss in six weeks, plunging 254 points. That afternoon, in Washington, D.C., members of the Federal Reserve’s Federal Open Market Committee discussed hiking interest rates.
And in Foothill Ranch, California, with the markets in chaos and an IPO expected that day, Anthony Hsieh, loanDepot chairman and CEO, made one of the biggest calls of his career: he would abort the potential $2.6 billion public offering, citing adverse market conditions and poor valuations for other newly public fintech companies. Though undoubtedly disappointed, Hsieh at the time didn’t rule out another bite at the IPO apple.
Five years later, analysts and competitors expect loanDepot – backed by private equity shop Parthenon Capital Partners and now the nation’s sixth-largest retail originator – to join United Wholesale Mortgage, Caliber Home Loans, AmeriHome, Guild Mortgage, and Finance of America in gunning for market leader Rocket Companies, which made its successful public splash in early August.
“For the industry, especially for private equity that typically supports independent mortgage firms, this is a once-in-a-generation chance to monetize equity, that frankly was trapped inside of these companies,” said Christopher Whalen, an investment banker and author. “You couldn’t really take them public at book value. So if you were private equity, and you would put money into one of these things, it was basically in there and you could take out income, but you really didn’t have much chance to sell the business.”
The emergence of nonbank mortgage lenders as public companies may fundamentally change the composition of the industry, giving a host of companies access to cash they couldn’t have dreamed of a year ago.
But more importantly, industry observers say, the IPO craze should separate the wheat from the chaff, and will test the strength of various lender models like never before.
“It’s so exciting,” said an executive at one large nonbank lender. “We’re going to finally see who’s full of shit and who isn’t.”
Whether investors believe nonbank lenders are a good value during a time of record origination, outsized margins and historically low interest rates, remains to be seen.
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