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WaFd (WAFD) Completes Sale of CRE Loans, Enhances Liquidity
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Washington Federal Bank, a subsidiary of WaFd, Inc. (WAFD - Free Report) , has sold nearly $2.8 billion of multi-family commercial real estate (CRE) loans to Bank of America (BAC - Free Report) . This transaction, the largest non-FDIC-assisted CRE loan sale ever recorded, was executed at 92% of the principal balance, ensuring no financial loss for the company.
Subsequently, BAC sold these loans to Pacific Investment Management Company LLC, which will eventually manage the loans.
The sale of these high-quality loans provides WaFd with immediate liquidity and demonstrates the robustness of its CRE portfolio amid a challenging high interest rate environment. The president and CEO of the company, Brent Beardall, emphasized that the discount applied was mainly due to interest rate changes rather than loan quality, reinforcing the strength and stability of the portfolio.
This strategic divestment offers multiple advantages for WaFd. Firstly, the liquidity generated could be utilized to reduce debt, originate new loans, or repurchase stock. These are likely to enhance shareholder value. Additionally, reducing CRE exposure aligns with regulatory scrutiny from bodies like the Federal Reserve, FDIC and Office of the Comptroller of the Currency, particularly as banks with CRE portfolios exceeding three times their capital or those that have grown significantly in recent years face increased oversight.
The divested CRE loans were part of the Luther Burbank Savings, which WAFD acquired in February. The sale was not a merger condition but a proactive step to bolster the bank’s financial flexibility. By managing its CRE exposure, the company positions itself favorably against potential market volatility and regulatory pressures, ensuring a more balanced and resilient portfolio.
The strategic sale of its multi-family CRE loans reflected WaFd’s prudent risk management and commitment to maximizing shareholder value while navigating a complex regulatory landscape.
Earlier this month, Moody’s Ratings, a division of Moody’s Corporation (MCO - Free Report) placed WaFd’s long-term ratings under review for downgrade primarily because of its significant exposure to CRE loans. The rating agency noted that it would consider the impact of the sale of CRE loans on the company’s capital, liquidity and profitability profiles.
Moody’s further added that its review for downgrade would focus on the extent to which WAFD could maintain sufficient qualitative and quantitative risk mitigants to offset the dangers associated with its CRE loan exposures.
Shares of WaFd have lost 5.1% over the past three months compared with the industry’s fall of 3.9%.
Image: Bigstock
WaFd (WAFD) Completes Sale of CRE Loans, Enhances Liquidity
Washington Federal Bank, a subsidiary of WaFd, Inc. (WAFD - Free Report) , has sold nearly $2.8 billion of multi-family commercial real estate (CRE) loans to Bank of America (BAC - Free Report) . This transaction, the largest non-FDIC-assisted CRE loan sale ever recorded, was executed at 92% of the principal balance, ensuring no financial loss for the company.
Subsequently, BAC sold these loans to Pacific Investment Management Company LLC, which will eventually manage the loans.
The sale of these high-quality loans provides WaFd with immediate liquidity and demonstrates the robustness of its CRE portfolio amid a challenging high interest rate environment. The president and CEO of the company, Brent Beardall, emphasized that the discount applied was mainly due to interest rate changes rather than loan quality, reinforcing the strength and stability of the portfolio.
This strategic divestment offers multiple advantages for WaFd. Firstly, the liquidity generated could be utilized to reduce debt, originate new loans, or repurchase stock. These are likely to enhance shareholder value. Additionally, reducing CRE exposure aligns with regulatory scrutiny from bodies like the Federal Reserve, FDIC and Office of the Comptroller of the Currency, particularly as banks with CRE portfolios exceeding three times their capital or those that have grown significantly in recent years face increased oversight.
The divested CRE loans were part of the Luther Burbank Savings, which WAFD acquired in February. The sale was not a merger condition but a proactive step to bolster the bank’s financial flexibility. By managing its CRE exposure, the company positions itself favorably against potential market volatility and regulatory pressures, ensuring a more balanced and resilient portfolio.
The strategic sale of its multi-family CRE loans reflected WaFd’s prudent risk management and commitment to maximizing shareholder value while navigating a complex regulatory landscape.
Earlier this month, Moody’s Ratings, a division of Moody’s Corporation (MCO - Free Report) placed WaFd’s long-term ratings under review for downgrade primarily because of its significant exposure to CRE loans. The rating agency noted that it would consider the impact of the sale of CRE loans on the company’s capital, liquidity and profitability profiles.
Moody’s further added that its review for downgrade would focus on the extent to which WAFD could maintain sufficient qualitative and quantitative risk mitigants to offset the dangers associated with its CRE loan exposures.
Shares of WaFd have lost 5.1% over the past three months compared with the industry’s fall of 3.9%.
Image Source: Zacks Investment Research
Currently, WAFD carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.