Two proxy advisors have weighed in on Roaring Blue Lion’s proxy fight with HomeStreet (Nasdaq:HMST), with Glass Lewis recommending that shareholders vote for HomeStreet’s nominees and ISS recommending that shareholders vote against one of HomeStreet’s nominees.
I don’t have access to either Glass Lewis’ or ISS’ report, so I don’t know the full extent of either of their recommendations or rationales therefor, but one comment from Glass Lewis’ report (quoted in HomeStreet’s synopsis thereof) stood out.
Per HomeStreet’s quote of the Glass Lewis report “We believe differences in the Company’s performance and valuation relative to peers can partially be attributed to differences in business mix and the Company’s relatively high exposure to the mortgage industry.”
That, to quote the immortal F. Ross Johnson, is a “blinding glimpse of the obvious.”
What is odd about the above quote from the Glass Lewis report—and why HomeStreet would choose to highlight it—is that I don’t think anyone would disagree with its accuracy. I don’t know the context for the quote, but the key issue of contention is not whether HomeStreet’s “high exposure to the mortgage industry,” is the cause of its lackluster performance and paltry valuation (hint: it is), but what, if any, should be the repercussions of the decisions (and execution thereof) that left HomeStreet’s financial results, condition and prospects so at risk in the event of a (completely predictable) downturn in the mortgage business.
Given that it is pretty well understood that the mortgage business slows as interest rates rise, as well as the well telegraphed path of Fed rate hikes, it should have been (and was) obvious a while ago that a “high exposure to the mortgage industry” was not going to be a desirable thing. The real issue at hand is whether current HomeStreet management did (or is capable of doing) enough to build out other business lines to offset the very predictable weakness in mortgage.
Not to beat a dead horse on this one, but rather than spending a lot of time trying to figure out whether HomeStreet’s management is on the right path to minimizing the reliance on mortgage or whether the more aggressive measures proposed by Roaring Blue Lion are the better option, I think all parties involved should focus on finding a partner for whom HomeStreet’s mortgage business will compliment larger and more established commercial and/or consumer businesses. It seems pretty clear to me that the public market has a pretty gloomy outlook on HomeStreet’s ability to exercise adequate self- help—the time has come for HomeStreet to test its value in the private market.