Good morning ladies and gentlemen and welcome to Rithm Capital Corp Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would like now to turn the conference over to Emma Bola, Associate General Counsel. Please go ahead.

Thank you and good morning, everyone. I would like to thank you for joining us today for Rithm Capital's third quarter 2023 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; and Nick Santoro, Chief Financial Officer of Rithm Capital. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks Emma and good morning, everyone. Thanks for joining us. Really exciting times for our company. From an earnings perspective in this overall operations in the quarter a very, very, solid quarter, core business lines continued to perform extremely well. The positioning we put in place over the course of the past couple years has continued to pay dividends as they create solid earnings, book value growth, and high levels of liquidity. We expect this to continue into the future with the Fed signaling higher rates for a longer period of time. The global macro backdrop for investing puts our company in a great place to take advantage of where we believe the markets are headed. As you know, we have been very vocal about repositioning the company into more of an alternative asset manager. Before I go there I want to be clear, the core business lines which have gotten us to this point are crucial to the future of our company. We believe Rithm 1.0 which is our existing core business, plus Rithm Private Capital will be a huge lift for our investors, shareholders, and our employees. With the Sculptor announcement we add great investment talents to our already terrific team. This expands our capabilities globally into all areas of credit, real estate, consumer, and other strategies that I'm sure we will launch at some point here in the near future. We're also working on another transaction that upon consummation grows our asset management business to 50 billion of AUM. These transactions are transformational for us and continue our narrative towards being a leading global asset management business. We are extremely excited by the prospects of growing our business in the private sector and most importantly, adding partners who want to win with us and grow with us…

Thank you. [Operator Instructions].

Okay, we are ready. Are there any questions.

Okay, the first question comes with Kim Chang with BTIG. Please go ahead.

This is Eric Hagen from BTIG. Good morning. Hey, how you doing guys? Alright, So I don't mean to be so short term focus but how have MSR valuations maybe trended in October, are there any bulk packages, maybe even some opportunities that you feel like could emerge between now and like year-end or kind of early next year? How we're just looking at the MSR market right now? Thank you.

Yeah, here's what I would say on MSR. I think we were modest in how we thought about our gains in the quarter. As many of you know, we are a buyer short. MSRs have negative duration, at some point where you're going to see as multiples being kept on what I would say some of the legacy MSRs. So the short answer is modest, modest movement in March. I think our weighted average MSR multiples of 5.1 [ph], at this point. There's still room to go. We are still a buyer short, and we're going to remain that way until we think we see things change. The Fed has signaled that higher for longer, the economic data has been reasonably what I would say, okay, to probably not as soft as the Fed would like it to be. So we're going to stay the course. Regarding other packages, there's always going to be things that come up. As we all know, the banks from a capital perspective, there's a lot of regulation and rules running around right now. The banks are, nobody's really happy about it from a banking perspective. I think this will create more opportunity as banks have to hold more capital against certain assets, that could create opportunities for us. But again, Eric, I just want to point out as we think about capital deployment, we do think strategically where we think we're going to in 15% to 20% returns on our capital. If we see a package of MSRs that we think we could achieve those returns, we'll have a hard look at it. If not, we're likely not going to play in that sector because like I pointed out, we have 840 billion notional amount of MSRs and we can manufacture our own.

Yeah, that's great color. Hey, so from a financing standpoint, like how much headroom did you have to borrow more on the secured MSR funding and what was like your tolerance level going forward as you look to Sculptor and you look at closing Computershare, how much headroom do you guys have and all that? Thanks.

Cash and cash and liquidity at the end of the quarter was give or take about $2 billion. I think that's increased a little bit as we go into Q4. Candidly, I think the capital markets, folks, my partner Charles and Sanjeev do a great job around our balance sheet and working with our lenders around certain things. So there's plenty of room to go. We're not looking over our balance sheet though, right here. I think you'll see other sources of capital come in, including private capital from third parties.

Yep. Really helpful. Thank you guys. Appreciate it.

Thanks Eric.

Thank you. The next question comes with Bose George with KBW. Please go ahead.

Good morning. Just wanted to follow up on the performance quarter to date. Just can you get -- in terms of book value can you just give us an idea where that is now?

We've booked value at the end of Q3 at $12.32, which was up from $12.16. It's probably modestly higher with rates up a little bit. You know, like I said, we are a buyer short on our overall business. So depending upon what happens with rates here, part of this calculus as a REIT, we have to have agency mortgages. So you have a little bit of a basis thing from a whole pool perspective, depending upon what happens with the basis. The basis today is as wide as it's been since the SBB crisis. And we expect that to remain under a little bit of pressure here with the deficit where it is and the government continuing to have to sell a lot of debt. I think the refunding announcement will be a little bit of a catalyst where the mortgage market goes. As we know obviously mortgages are there's a lot less supply that comes into play, the challenges that the banks are not really able to buy anything just based on where they are from a capital perspective. But overall, I would say we're trending higher, and it just depends on where we go with some of our marks around the MSR business.

Okay, great. Thanks. And then actually on this sheet that we show the yields, so on the conventional MSR you showed 9% to 10%. What's the leverage that you use on that and what are the funding costs, what's kind of the levered ROEs on the investment?

It's typically something around 60 to 65 kind of advanced rates, what I would say. And right now funding costs in and around certain things depending on we have term funding, and they're likely around SOFR Plus 250ish. SOFR 250 to 300. The other thing is we have a bunch of term financing that's already existing on our MSR that's been outstanding for a few years based on capital markets issuance that we've done, which is lower obviously.

Okay, great. Thank you.

The next question comes with Kevin Barker with Piper Sandler. Please go ahead.

Great. Thanks for taking my questions. I just wanted to follow up on the plans for Sculptor and the more you spin off. Obviously, there's a lot of moving parts there. And, there's different things that need to come into place. But ideally, how do you see this playing out as far as a tiny perspective, and then how much capital you think will remain in the mortgage company, I know you addressed it previously but just love to the refresh there, as all that all that plays out? Thanks.

So we have the S1 on file. We continue to evaluate alternatives, as we all know taking a mortgage company, or quite frankly, any company public right now is a little bit of a challenging task. The idea around the mortgage company as a way is the thought is to try to figure out a way to recycle capital. I think one of the things we're going to do when you think about MSRs for example, we're working on different funds, not necessarily just specific MSRs, but really more specific to what I would call the mortgage company as a capital vehicle. And what I mean by that is, you have the origination business and the MSR side, as rates do rally at some point in our careers going forward. You want the folks that are deploying capital in these funds to be able to realize what I would call either recapture or not give up that MSR. So I would say the mortgage company and the recycling of the capital, there is fluid. As it relates to the bigger picture, I've been pretty vocal. We are going to, and I alluded to this in my opening comments, I truly believe by the end of Q4 that there is a possibility, we'll have 50 billion of AUM, as an asset manager, you think of like the biggest and best alternative asset managers out there, they have their C Corp, they have a REIT, and then they have their private capital business. That's ultimately where I think we'll be. And then hopefully, at some point down the road, we'll have an insurance leads. So we're working on all of these things. The capital formation around our businesses is going to be as we know, our stock is $9, book value is $12.30. The capital formation side will likely be more in the private capital business than it will be in the public markets at this point, just based on how poorly I think REIT stocks trade. But, it's safe to say, based on our ambitions and where we're headed, and I think the progress that we have made, that we will be a real global alternative asset manager by the end of the year.

Okay, and so, are there any specific points that we should look for the see that this really has legs, and we start to see like it really playing out. Is it S1 on the mortgage company or the closing of Sculptors or certain particular points that you're looking for, really say this is going to play out as expected?

Sure, so I think Sculptor obviously is an important piece as we go into the asset -- grow our asset management business. I'd also say that we are an asset manager, we just operate under the wrapper of a REIT. Sculptor is very important in the asset management side, we're working on another what I would call sizable transformational transaction that we expect to get done by the end of the year as well. And that gets you on the asset management business to where we want. On the mortgage company side, the cash flow that we get from that as a corporation, or at the Rithm level is you know awesome. So if you think about it, you look at earnings for the quarter where $0.42 or whatever it is plus $0.43 plus $0.15, for the excess, when I look at the mortgage company overall, and I look at our ROE, and I look at where we were minus the one timers, I think actual return on equity for the quarter is something around net-net 15%. Is that right? You know, on an annual basis, I think we're trending towards annual ROE of about 30%. So, we're not looking to give up any of these assets because on a go forward basis in this rate environment, the mortgage company will help as well as all the other things that we have going probably contribute to something between $0.35 and $0.40 -- $0.45 run rate on our core business. We don't want to give that up, we just want to figure out a way to manufacture more capital at the cheapest basis, and then figure out how we can deploy that capital, in what I would call today's great investing environment. But overall, we're not giving up on the mortgage company, things that we're looking at are expenses, we're looking at retail, clearly, because that business really doesn't make any money right now, when you think about true volumes and cost to run that business. But overall, we're really happy with the asset that we have. We just have to figure out a way to generate more capital because we think the investing environment is that good. That's why we're running around the globe, quite frankly, on our private capital business.

Right. Thanks for all the color, Michael.

Thanks, Kevin.

Thank you all very much. And with that we can -- and this concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks. Please go ahead.

Great. So thanks for dialing in everybody. Stay well and we look forward to updating you on more developments and as things change in our in our company. Have a great day. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a good day.