Redwood Trust Shares Spike Following Restructuring Strategy

Shares of Redwood Trust, Inc. RWT spiked higher by more than 6 percent after Wednesday's market close as the company detailed a restructuring plan related to its residential mortgage loan operations.

Redwood Trust will restructure its conforming loan operations by discounting the acquisition and aggregation of conforming loans for resale to Fannie Mae and Freddie Mac. The company will shift its resources and focus on direct conforming-related investments in mortgage service rights and risk-sharing transactions.

"Our conforming loan purchase and sale operations generated a pre-tax loss of $10 to $11 million in 2015 or a loss of $7 to $8 million on an after-tax basis based on our preliminary full-year 2015 results. This included interest and fees of approximately $12 million associated with $5.2 billion of loan purchases, and operating expenses of approximately $22 million," said Christopher Abate, Chief Financial Officer of Redwood Trust. "As a result of the restructuring we are announcing today, we will eliminate this earnings drag from our conforming operating activities going forward and free up $45 million of capital for re-investment during 2016."

Redwood Trust also stated that its preliminary net interest income from its portfolio investments was $160 million for the full fiscal year 2015. Looking forward to 2016, the company expects further growth in net interest income. The company also noted that its "strong" balance sheet and liquidity will " allow us to take advantage of investment opportunities as they arise, including opportunities resulting from market dislocations, and consider additional share repurchases."