HomeStreet Bank is a Seattle-based bank that has made a major move to strengthen its financial standing by selling almost $990,000,000 of multifamily commercial property loans to Bank of America.
The strategic decision announced on Friday aims at bringing the bank to profitability again and relieving the financial burden from expensive sources of funding.
The need for a deal
BofA agreed to purchase the loan portfolio at a price of approximately $906,000,000, which represents a discount of around 8% from the face value.
HomeStreet says that this discount is due to “the current rate environment, and the fact that most of the loans are lower yielding.”
The transaction is a crucial step in HomeStreet’s recovery from its four quarters of consecutive losses. It may also help ease fears after the regulators rejected their planned merger with FirstSun Capital Bancorp.
In early trading, shares in the bank rose nearly 6%.
Mark Mason, CEO of HomeStreet, told Reuters that “Entering this agreement…is the first step to implementing a strategic plan which will result in a return in profitability to the bank on a consolidated level early next year.”
Proceeds from this sale will help to pay off debts taken out from Federal Home Loan Bank and reduce expensive brokered deposits.
The bank has been heavily impacted by these brokered deposits that carry higher rates of interest than the core deposit.
Commercial real estate: a guide to the landscape
This decision highlights the difficulties that regional banks are facing in this current economic environment.
The ability of borrowers to pay back these loans has been strained by higher interest rates, especially for those related to apartment blocks with four or more units.
Large banks, like BofA with higher capital, more deposits and a smaller exposure to commercial real estate loans are better placed to handle such fluctuations.
The market expects that the Federal Reserve will cut rates and ease pressure on the loans.
There is a transaction in the near future
It is not expected that the sale will be completed before December.
HomeStreet continues to service these loans and maintains a relationship with the assets, despite the ownership change.
HomeStreet is making a strategic move to establish a sustainable financial future and regain their footing. This could be the beginning of a new recovery.
The post HomeStreet Bank Sells $990M In Loans To BofA As Strategic Profit Push may be updated as new information unfolds
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