Bank of America Makes Strategic Move with $990 Million Loan Acquisition

Bank of America has announced its acquisition of approximately $990 million in multifamily commercial real estate loans from HomeStreet Inc. This strategic move is aimed at bolstering Bank of America's loan portfolio while assisting HomeStreet in its efforts to regain profitability after a series of financial setbacks.

Key Takeaways

• Bank of America is acquiring $990 million in loans from HomeStreet.
• The sale price reflects about 92% of the loans' unpaid principal balance.
• HomeStreet plans to use the proceeds to pay down higher-interest debts.
• This transaction is part of HomeStreet's strategy to return to profitability.

Details of the Acquisition

The deal, which is set to close in two phases, involves Bank of America purchasing the loans at a price that is approximately 92% of their unpaid principal balance. The first part of the transaction, valued at around $652 million, is expected to close shortly, with the remaining $338 million to follow by December 30.

HomeStreet's CEO, Mark Mason, emphasized that this sale is a crucial step in the bank's new strategic plan aimed at restoring profitability. The bank has faced significant challenges, including four consecutive quarters of losses and a failed merger attempt with FirstSun Capital Bancorp.

Financial Context

The loans being sold are primarily lower-yielding and have longer durations compared to HomeStreet's overall portfolio. This sale comes at a time when HomeStreet has been grappling with increased costs for deposits and reduced earnings from its investments. The proceeds from the loan sale will be utilized to pay down advances from the Federal Home Loan Bank and brokered deposits, which carry higher interest rates than the bank's core deposits.

Implications for HomeStreet

This transaction is seen as a pivotal moment for HomeStreet as it seeks to stabilize its financial standing. The bank's stock experienced a nearly 6% increase following the announcement, reflecting investor optimism about the potential for recovery. HomeStreet's management is hopeful that this move will pave the way for a return to profitability in the coming year.

Market Reactions

The acquisition has been positively received in the market, with analysts noting that it could alleviate some of the pressures faced by HomeStreet. The sale of these multifamily loans is particularly significant given the current interest rate environment, which has posed challenges for many regional banks. However, larger institutions like Bank of America have managed to navigate these challenges more effectively due to their stronger capital positions and diversified portfolios.

Conclusion

Bank of America's acquisition of $990 million in loans from HomeStreet marks a significant strategic move for both institutions. For Bank of America, it enhances its multifamily loan portfolio, while for HomeStreet, it represents a critical step towards financial recovery. As the transaction unfolds, stakeholders will be closely monitoring its impact on both banks' financial health and market positions.

Sources

• Bank of America (BAC) to Buy $990 Million of Multifamily Loans From HomeStreet - Bloomberg, Bloomberg.
• HomeStreet to Sell $990 Million in Loans to Bank of America, PYMNTS.com.
• HomeStreet Bank offloads $990 million multifamily loans to BofA in profit push, Yahoo Finance.