Redwood Trust shocked investors with a devastating quarterly report, despite slightly beating earnings per share expectations at $0.18 versus the anticipated $0.17. The stock plunged 3.46% in pre-market trading after revealing a staggering GAAP net loss of $100.2 million, which dramatically reduced book value per share from $8.39 to $7.49. In response, management announced a radical strategy shift, planning to divest legacy investments worth up to $250 million. These underperforming assets from 2021-2022 have become significant drags on performance with a negative return on equity of 22%. CEO Chris Sabate has already initiated aggressive countermeasures, including repurchasing 2.4 million shares since June and expanding the buyback program to $150 million.
Transformation Underway Through 2026
The company’s core operations showed promising signs amid the turmoil, with mortgage banking platforms achieving returns exceeding 20% and the Sequoia segment closing $3.3 billion in jumbo loans—a 15% increase from the previous quarter. CFO Brooke Carillo projected year-end consolidated return on equity between 9-12%, with plans to reduce legacy investments from 33% to 20% by year-end, and further down to 0-5% by 2026. Redwood is pivoting toward a capital-light platform model, evidenced by its Aspire division tripling volume to $330 million while CorVest financed over $500 million in loans. With its 31-year history of paying dividends (currently yielding 11.86%), Redwood is fighting to restore investor confidence through this comprehensive restructuring.
