Morning Report: Guild files to go public

Vital Statistics:

 

  Last Change
S&P futures 3488 26.6
Oil (WTI) 40.92 0.39
10 year government bond yield   0.77%
30 year fixed rate mortgage   2.87%

Stocks are higher this morning on stimulus hopes and data out of China. Bonds and MBS are down.

 

There won’t be much in the way of market-moving data this week, however we will get housing data with the NAHB Housing Market Index, housing starts and existing home sales.

 

The MBA Annual Virtual Convention kicks off today.

 

Low mortgage rates are driving the rise in home prices according to NAR. A tight inventory situation is also an issue. I wonder if we will even see the normal seasonal downtick in prices during the winter months this year. Potential buyers are wary of rising rates in the future and may be pushing to buy now.

 

San Diego based lender Guild is the latest mortgage banker who has filed to go public. Like most companies these days, there will be a dual voting class structure, which means McCarthy Partners will still control the vote. Based on the midpoint of the price talk, Guild will have roughly a billion dollar market cap. Over the 12 month period ending June 30, Guild originated $27.8 billion and earned $163 million. At $18 a share, Guild would be trading at 6.6 times earnings. Guild has a pretty strong purchase business and a decent recapture rate.

 

I find it interesting that issuing dual voting classes is so popular these days. Theoretically investors should be willing to pay less for non-voting stock, because there is no chance of the company being taken over, and the vote should be worth something. Historically, dual voting shares were largely limited to media companies who wanted to maintain editorial control over the content. The big social media companies did the same thing, and I guess that must be an editorial control decision as well. But mortgage companies? I guess since the market doesn’t appear to penalize Google and Facebook for a dual-class structure, why not do it? I wonder if ESG funds are the reason, especially when they push for companies to do things that don’t maximize shareholder value, like we have seen in natural resource companies.

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