Earnings
Rithm Capital's quarterly profit jumps to $217 million as mortgage servicing offsets a 19% drop in originations
The owner of Sculptor and Newrez lifted GAAP earnings tenfold from the second quarter, but its payout measure slipped and asset-management AUM held flat at about $61 billion.
HedgeWeekly News Desk ·
Rithm Capital reported third-quarter GAAP net income attributable to common shareholders of $217.1 million, or 38 cents a diluted share, on Friday, up from $20.2 million, or 4 cents, in the second quarter. Earnings available for distribution, the non-GAAP measure the company uses to frame its payout, eased to $315.3 million, or 55 cents a share, from 60 cents. Total revenue rose to $1.76 billion from $1.28 billion, and investingLive reported that both adjusted earnings and revenue came in ahead of forecasts.
Mortgage servicing did the heavy lifting. Newrez, the origination and servicing arm, earned $329.7 million in pre-tax operating income excluding mark-to-market moves on mortgage servicing rights, an annualised return on equity of 24%. Servicing balances reached $878.9 billion of unpaid principal, $282.8 billion of it for third parties. Funded origination volume, by contrast, fell to $12.9 billion, down 19% from the second quarter and 21% from a year earlier. Genesis, the transitional lending unit, grew originations 25% year on year to $1.5 billion.
The asset-management business, which includes Sculptor Capital Management and Crestline Management, ended the quarter with about $61 billion under management, unchanged from June after a methodology change on July 1. Gross inflows were $569 million in the quarter and $2.9 billion so far this year. Rithm also bought $1.6 billion of non-qualified mortgage loans and $521 million of home improvement loans from Upgrade, and amended that agreement to allow up to $1.2 billion of further purchases. The dividend was held at 25 cents a share, and cash and restricted cash stood at about $2.45 billion, level with June.
Why it matters: the jump in GAAP profit owes much to tax accounting rather than a step-change in operations. Income tax expense was $257.8 million, of which $254.7 million in deferred taxes was excluded from distributable earnings, and that payout measure actually fell. Book value of $12.51 a share compares with the $8.68 closing price listed alongside the release, a discount of roughly 31%. For allocators tracking Sculptor's parent, flat AUM and modest quarterly inflows are the figures to watch, alongside whether falling origination volumes stabilise in the fourth quarter.