WMIH Next Merger - My View - Between 8/1/2018 and 10/31/2018 -Target (OCN) Ocwen
Ocwen: Rumors Swirl On CEO Departure
Apr.24.18 | About: Ocwen Financial (OCN)
Michael Boyd
Michael Boyd
Long/short equity, contrarian, medium-term horizon, mid-cap
MARKETPLACEIndustrial Insights
(7,375 followers)
Summary
After 27 years at the firm, CEO Ronald Farris is moving on.
To outside observers, and knowing Farris, it seems odd for him to leave with the turnaround 85% done.
Speculation on the Street is that there is more to this story. Potential settlement with the CFPB and others?
Perhaps, the only constant in my ownership of Ocwen (OCN) has been CEO Ronald Farris, so it is with great sadness that I see him announce his retirement. In retrospect, looking at all the accomplishments he has made in the past several years, from refinancing of corporate debt and the term loan, the divestiture of MSRs at above-market prices to deleverage, California and New York monitor saga, and many others, Ocwen could very well have not survived with someone else at the helm. While we’ve occasionally disagreed on approach, I’ve been extremely happy with his leadership. At 54 years of age, with 27 of those years spent at Ocwen, it is unlikely anyone knows the company any better. There are very few CEOs nowadays that have worked their way to the top from the ground up in a company. Ronald Farris is one of them.
Former PHH CEO Glen Messina, who actually left the firm last year as PHH (NYSE:PHH) reined in costs and shook up the executive leadership team, has been tapped to head Ocwen in his stead. While not troubled by that nomination, there will be big shoes to fill. Given that Ocwen is now in the later stages of its turnaround, it is unusual to see him exit so late in the story. Why not carry through to the end after the acquisition of PHH?
Speculation is rampant on the Street that there is more going on. Recall that the New York Department of Financial Services (“NYDFS”) forced out Founder William Erbey in 2014. Perhaps remaining hold-out agencies that were part of the recent action from the Consumer Financial Protection Bureau (“CFPB”) legal action have asked that Farris hit the pavement as part of a settlement. As a shareholder-focused CEO, and one that has a large stake in the common stock of Ocwen, I would not be surprised to see Farris fall on his sword in order to allow Ocwen to again access the MSR markets once the transfer away from REALServicing is complete. With more than $300B of UPB after the PHH transaction closes, regulators might want to see legacy leadership out the door to ensure the company does not fall into old habits. In an interesting twist that adds more fuel to all of the speculation, the CFPB case was just moved into restricted status:
Perhaps, the timing here is coincidence, but it is interesting. I have large hopes for the PHH deal, particularly given the light out-of-pocket cost for Ocwen, but it is likely to not be the last consolidation move in the servicing business. Nationstar Mortgage (NSM), which will merge with WMIH (WMIH), is unlikely to be able to fully utilize the deferred tax assets it holds before expiration. For context, WMIH is a special purpose acquisition company (“SPAC”) controlled by private equity leader KKR (KKR). It would not surprise me in the slightest to see further consolidation in this space once Nationstar is digested.
The Ocwen story has been a roller coaster ride of ups and downs over the past several years, and given recent developments, I have a feeling that there are few more twists on the way. My hope is that news flow continues to be positive. Despite HAMP program changes that will harm results, earnings should markedly improve this year, especially if US Treasuries continue to see yields expand. Sell-side expectations for 2018 and 2019, while still low in my view, continue to improve. The shares have been slowly seeing improvement in recent months, and I’m hoping that momentum continues.
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Disclosure: I am/we are long OCN.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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