Rithm Capital (RITM) Q2 Earnings call transcript Jul 31, 2024

Rithm Capital, a leading player in the financial services industry, reported a strong second quarter performance, with its mortgage company, Newrez, and alternative asset business, Sculptor, contributing significantly to the company's growth. The earnings call, led by CEO Michael Nierenberg, highlighted the company's strategic acquisitions, robust returns, and optimistic outlook for the future.

Strategic Acquisitions and Growth Initiatives

Rithm Capital's strategic acquisitions during the quarter, including the acquisition of SLS, a mortgage company, and the investment in the Sculptor CLO business, have significantly bolstered the company's position in the market. These deals have added $56 billion in owned servicing and $100 billion in third-party servicing to the Newrez platform, and have further strengthened the company's investment portfolio. The acquisition of Great Ajax, a residential mortgage REIT, is also expected to transition into an opportunistic commercial mortgage REIT, adding to the company's fee-related earnings.

Strong Financial Performance and Outlook

The company reported a book value of $12.39 per diluted share and a GAAP net income of $213 million, or $0.43 per diluted share. The earnings available for distribution stood at $231 million, or $0.47 per diluted share. Despite the economic return for the quarter being 3.7%, the earnings after distribution return on equity was a robust 15%. The company's cash and liquidity at the end of Q2 stood at $1.5 billion, demonstrating its financial strength.

Market Position and Competitive Advantage

Rithm Capital's position in the market is strong, with the company being the second largest nonbank servicer and the fifth largest lender in the industry. The company's growth is driven by its disciplined management, focus on operational excellence, and expansion of its third-party client base. The mortgage company, Newrez, is gaining market share in the mortgage origination business, particularly in the correspondent channel, and is well-positioned for growth in the back half of the year.

Macroeconomic Themes and Future Outlook

The company's outlook for the future is positive, with expectations of the Fed lowering rates in September. This is expected to lower borrowing costs and lead to higher earnings for the company. The steepening yield curve and the lower cost of finance from mortgage-related assets are also expected to generate solid returns and earnings for the business and good returns for shareholders. The company's diverse business model, including its direct lending businesses and investment portfolio, positions it well for future growth.

Conclusion

Rithm Capital's strong second quarter performance and strategic acquisitions demonstrate its ability to navigate the complex financial services landscape. With a focus on mortgage company growth, a robust alternative asset business, and a disciplined approach to operational excellence, Rithm Capital is well-positioned for future growth and success. The company's optimistic outlook and strategic initiatives are a testament to its leadership and its commitment to delivering value for shareholders and investors.