I've complained before about CapitalSource (NYSE:CSE) getting too big to focus on its core competencies, but with the acquisition of the Fremont branches, CapitalSource is looking less a mortgage REIT and more like, well, Countrywide (CFC). In fact, this deal reminds me a bit of the IndyMac (IMB) restructuring from a REIT to a thrift back in 1999 after liquidity concerns forced IMB to seek new sources of funding in order to grow the business.
Scott Valentin at FBR Capital Markets asked precisely the question that concerned me the most:
Then as far as the REIT status, are there any implications in terms of trying to manage the REIT compliant assets with the bank?
CEO John Delaney poo-poohed Valentin's concerns, responding:
No, actually one thing we can probably comment on is our agency portfolio, which a lot of people know has been driving our REIT optimization -- REIT compliance. We have actually been able to downsize that because we had overinvested in that. That portfolio is probably now down to $2.5 billion. And we think it is going to go smaller because we don't need quite as many assets. So managing the REIT structure right now has not been that difficult for us. So this doesn't change any of that.
CapitalSource hasn't proven to me that it can run a mortgage REIT just yet. Now they're going to run a bank in the middle of a severe financial crisis. I guess CSE really is the SuperREIT.