Sterne Agee lowers and suspends estimates on OcwenÕ debt refi

Analysts unsure what new Ocwen will look like going forward

Ocwen Financial (OCN) has been through a seriously rough patch, and while it’s hard to make sense out of where the company is going, it’s not going away, according to analysts at Sterne Agee.

The beleaguered nonbank attempted to calm investor turmoil when it reported earlier last month that it expects to record a loss for both the fourth quarter and full year 2014, but the company still hasn’t reported its financial data for 2014.

And last week, the company was hit with an avalanche of bad news, in the form of reports that Ocwen was fired as the servicer from two residential mortgage-backed securitizations and accused of costing bond investors $26 billion.

“(Ocwen) is not going broke; it is refinancing its debt and raising cash. Our best estimate of tangible book value is (about) $10 per share,” says analyst Henry Coffey and his team at Sterne Agee in a client note Tuesday.

Ocwen announced that it had hired Barclays and Moelis & Company to support the company and advise it regarding its capital planning and to explore strategic options.

“In addition to items outlined in its February 5 release, the company indicated that it expects to write off $370-$420 million in goodwill and create a $15 million remediation reserve related to erroneously dated borrower correspondences,” Coffey says. “The company indicated it expects to book a full-year loss and negative tax rate. Our best guess, based in part on the data in the attached exhibit, is that the company reports a 4Q14 loss of $5.50 per share. We are reducing our FY2014 estimate from $2.10 to a loss of $3.75. We are suspending our estimates for 2015 and 2016 since we have no idea what the new (Ocwen) will look like.”

Ocwen previously announced it had sold $9.8 billion in agency servicing and indicated that it has signed a definitive agreement to sell an additional $45 billion in agency servicing. The beleaguered nonbank has also announced an agreement to sell performing/non-performing loans for a net gain of $14 million.

“…(W)e look at both the charges expected to be reported in 4Q14 and expected gains from asset and servicing sales. To this we would add likely additional losses to tangible book of above $1.00 to $2.00 per share. This get us to a tangible book value estimate of (about) $10.00 per share,” they write.

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