Bank of America (BofA) will be purchasing nearly USD 990 million worth of multifamily commercial real estate loans from HomeStreet Bank, which the Seattle-based lender said would help it become profitable again and cut down on expensive funding sources. For the loans, BofA has agreed to pay approximately USD 906 million, or roughly 92% of the portfolio’s value.
HomeStreet stated that the small discount is a reflection of “the current interest rate environment and that the loans being sold are primarily lower yielding.” As it charts a course to profitability following four straight quarters of adjusted losses, the deal represents a significant turning point for HomeStreet.
Additionally, it might ease investor concerns following the regulators’ decision to block the bank’s proposed merger with FirstSun Capital Bancorp. In early trading, the bank’s shares surged by almost 6%.
“Entering into this agreement…is the first step in implementing a new strategic plan, which we expect to result in a return to profitability for the bank and on a consolidated basis early next year,” HomeStreet CEO Mark Mason said, as reported by Reuters.
According to HomeStreet, the sale’s proceeds will be used to pay off expensive brokered deposits, which have higher interest rates than core deposits, as well as to pay back some debt it has taken out from the Federal Home Loan Bank.
As rising interest rates put pressure on borrowers, regional banks have been particularly concerned about commercial real estate loans, particularly those associated with multifamily properties, or apartment complexes with more than four units.
However, larger banks like BofA were better equipped to handle the crisis due to their higher capital levels, sufficient deposits, and reduced exposure to CRE loans.
As the Federal Reserve lowers interest rates, pressure on these loans should lessen. It is anticipated that the sale will close before December 31. According to the statement, HomeStreet will continue to service the loans following the sale.
Meanwhile, Bank of America, along with its industry peer Citigroup, will be leaving a global climate-banking group, becoming the latest Wall Street lender to exit the coalition.
Citigroup said while it remains committed to achieving net zero emissions, it’s exiting the Net-Zero Banking Alliance (NZBA). Bank of America said separately that it was also leaving NZBA, adding that it will continue to work with clients on reducing greenhouse gas emissions.
The banks’ departure from NZBA follows Goldman Sachs and Wells Fargo, with the largest American financial institutions facing increasing pressure from Republican lawmakers to distance themselves from industry groups that support reducing carbon emissions.
NZBA is part of the Glasgow Financial Alliance for “Net Zero,” a United Nations-backed umbrella group of climate alliances. Citigroup and Bank of America are founding members of GFANZ. Earlier, GFANZ said about making changes that would “redouble its efforts to mobilise private capital” to support the energy transition.