Despite posting its fifth consecutive quarterly loss, and its biggest one yet by far, Flagstar Bancorp Inc.'s new chairman and chief executive insisted the company could be a potential acquirer once it raises more capital.
"In a marketplace that we anticipate will present opportunities for consolidation, we believe it is prudent to ensure our access to additional capital to best position Flagstar to take advantage of those opportunities," Joseph P. Campanelli, who became the Troy, Mich., company's CEO last month, said Tuesday during his first quarterly conference call. The call lasted less than 15 minutes and the executives did not take questions.
The $14.8 billion-asset Flagstar said that it had filed a shelf registration to raise up to $1.83 billion.
The company posted a third-quarter loss of $298.5 million, dwarfing its losses of $62.1 million a year earlier and $76.6 million in the second quarter. It has lost money in eight of the last nine quarters.
The per-share loss was 64 cents — more than 10 times worse than the average estimate of analysts.
Terry McEvoy, an analyst with Oppenheimer & Co., said Flagstar could eventually become a market consolidator, given its presence in Michigan and Georgia.
But before looking to strike deals, it must address its own issues, he said.
"Clearly, their capital came under pressure this quarter," McEvoy said. "So for them to say they want to be a market consolidator, I kind of think, 'clean up your own house before you go look elsewhere.'"
The loss was driven by a $183.9 million valuation allowance on Flagstar's deferred tax asset. This asset can be used to offset taxes on future income; reducing it is an indication that a company's accountants do not expect it to post profits anytime soon.
Also hurting the company's results was a provision for loan losses of $125.5 million, up 40% from a year earlier but flat from the second quarter. Nonperforming assets doubled from a year earlier, to $1.25 billion, or 8.41% of total assets. The nonperformers increased 14% from the second quarter.
Still, Campanelli, who added the chairman title Tuesday, said that given the various reviews of the loan portfolio, Flagstar feels it has its arms around the problems. "There's a fair amount of comfort that all the issues have been adequately identified," he said. "There's no question we have some challenges facing us. And there are some important decisions to be made, perhaps some unpleasant ones."
Though the company has lost roughly $750 million since 2007, it has remained well capitalized thanks to a $266.6 million investment from the Treasury Department's Troubled Asset Relief Program, as well as the $350 million that the New York private-equity firm MatlinPatterson Global Advisors LLC has invested in the last year, giving the investment firm 80% controlling ownership of Flagstar.
Flagstar also filed a proxy statement Tuesday that asked shareholders to increase the number of shares outstanding from 750 million to 3 billion.
It is unclear whether MatlinPatterson would participate in any future capital raises. MatlinPatterson would not discuss the matter, but Campanelli said on the call that "our primary investor is committed to Flagstar."