Last month, Moody’s Investors Service recommended that the company should not sell its fleet management operations, because it would “weaken the company's franchise strength and result in a business with a more concentrated revenue base."
Those concerns were echoed in an additional Moody’s report issued May 5. In that report, Moody’s said that sale of PHH’s fleet management business would be “credit negative for PHH’s franchise.”
Moody’s suggests that a sale of the fleet business would weaken the company’s credit profile. “Unless the remaining mortgage banking business were to change its funding profile and significantly decrease its leverage, such a sale could result in a downgrade of one or even two notches,” Moody’s report says.
On the heels of those reports, PHH reported its first quarter earnings for 2014, and the news was not promising for the company’s future.
The company posted a loss of $42 million or $0.73 per basic share. The company's tangible book value per share was $27.34 on March 31, 2014, down 3% from $28.15 on December 31, 2013, and up 3% from $26.62 on March 31, 2013.
“In the first quarter, our fleet business again delivered strong earnings while results in our mortgage business were consistent with the mortgage industry environment and our expectations,” Glen A. Messina, president and CEO of PHH Corporation, said. “We continue to take decisive actions to strengthen PHH’s position to meet the challenges and opportunities that lie ahead in a home purchase-driven market.”
The company reported purchase closings of $3.6 billion, which was a 14% increase from the $3.1 billion in 1Q13. But the company’s total retail mortgage loan closings were only $7 billion in the first quarter, which is down 40% from $11.5 billion during the same period last year.
The company’s mortgage business is down significantly from last year. The company’s mortgage production segment loss in the first quarter of 2014 was $60 million, compared to a segment loss of $45 million in the fourth quarter of 2013 and a segment profit of $45 million in the first quarter of 2013.
The company’s servicing segment took a big hit as well. The company’s mortgage servicing segment posted a loss in the first quarter of 2014 of $29 million, compared to a segment profit of $86 million in the fourth quarter of 2013 and a segment profit of $18 million in the first quarter of 2013.
The company’s total first quarter 2014 mortgage closings were $7.4 billion, down 22% from the fourth quarter of 2013 and 45% from the first quarter of 2013.
On the other hand, its fleet management business segment produced a profit. In the first quarter of 2014, the fleet management services segment produced a profit of $21 million, down from a segment profit of $22 million in the fourth quarter of 2013 and equal to segment profit in the first quarter of 2013.
Messina said the company is still considering splitting its business and that the split could happen very quickly. “We continue to explore a separation or sale of our businesses, following a disciplined process focused on optimizing both near-term and long-term value for our shareholders,” he said. “We expect to reach conclusions in this process by the end of the second quarter.”