Anthony Hsieh has launched a proxy fight against the company he founded and built into one of the nation’s largest mortgage originators—loanDepot Inc.
The odd battle at Irvine-based loanDepot (NYSE: LDI)—where Hsieh controls 57% of the combined voting power—broke out into the open on Feb. 7 with dueling statements over adding Steven Ozonian, a veteran in the lending world, to the board of directors.
“I have only seen signals that leave me very concerned that the scourge of board entrenchment is taking hold,” Hsieh told investors in a letter. “The board’s recent decision to create a committee that excludes me and my director designee—in order to contest Mr. Ozonian’s nomination—only accentuates this concern, as does its decision that I should no longer serve as executive chairman.”
In a surprising move that indicated Hsieh has lost the backing of his board of directors, it voted on Feb. 6 by a 5-2 margin to remove him as executive chairman, which means he’s no longer an employee of the company; he does retain the chairman title.
Hsieh said the special board meeting was called without providing him an agenda of topics to be discussed.
The board responded by criticizing its hard-charging founder for acting too hastily.
“It is surprising and disappointing that Mr. Hsieh would attempt to circumvent the company’s process for assessing potential director nominees,” Dawn Lepore, chair of the board’s Nominating and Corporate Governance Committee, said in a separate statement. “We question why he would pursue a disruptive proxy contest to install his nominee when Mr. Ozonian has already been, and continues to be, under evaluation.”
Interest Rate Woes
The past year’s rise in interest rates by the Federal Reserve has decimated revenue at the lender, which in recent months moved its base from Foothill Ranch to Irvine as part of a restructuring effort.
LoanDepot, which has depended heavily on refinancing, will probably report a 66% drop in revenue to $1.27 billion in 2022, according to the estimates of analysts, who predict another 33% decline this year to $1 billon.
The company’s stock has correspondingly dropped more than 90% since a post-IPO high that almost reached $40 in 2021.
In the two trading sessions after the dispute became public, shares dropped 17% to $2.17 and a $717 million market cap.
The Beginning
Hsieh, who was born in Taiwan, became a mortgage lender at age 21 and bought out the owners of his company at the time, changing the name to loandirect.com, which he said was the world’s first internet-based financial services company. He sold it in 2001 to E-Trade Financial Corp. for shares worth about $51.5 million.
At 35, he founded HomeLoanCenter.com, selling it for an undisclosed price to IAC/Interactive Corp., which merged it into LendingTree Inc.
In 2010, he started loanDepot as “a way to do something.”
In 2020, Hsieh saw business boom as the Federal Reserve cut interest rates at the start of the pandemic and homeowners rushed to refinance their mortgages. Revenue tripled to $4.2 billion in 2020 from the prior year. The Business Journal in early 2021 named Hsieh as its Businessperson of the Year in the finance sector.
Stepping Down
The company in May announced that Hsieh would step aside as chief executive in favor of Frank Martell, the prior CEO of CoreLogic, the Irvine-based provider of consumer residential data and which was sold and taken private after a proxy battle in 2021. Martell is also a member of loanDepot’s board of directors.
The Fed’s increase of benchmark interest rates has caused loanDepot’s shares to fall as low as $1.25 in October.
The company has also cut its workforce from 11,300 in late 2021 to about 6,000 at press time.
“The past year has been difficult,” Hsieh said in his letter. “In the face of challenge, I firmly believe it is important to seek out fresh perspectives. As leaders of this company and stewards of stockholder capital, the board must always challenge itself to be a dynamic center of passionate, informed and relevant perspectives to help guide the company to future success.”
Hsieh said he acted last week because the deadline for nominating a director is Feb. 17 and that the board is “looking to run out the clock” on considering Ozonian.
Staggered Election
Hsieh’s problem is loanDepot has a staggered election system where only two members of the eight members are elected annually.
Scheduled for election this year are Andrew Dodson and Pamela Hughes Patenaude.
Hsieh said he cannot vote Dodson off the board because he represents Parthenon Capital LLC, one of the earliest original venture capital backers of loanDepot.
Hsieh said his battle wasn’t “personal” against Patenaude nor a “negative reflection” of the current management or the “wonderful people” of loanDepot.
“I have worked to convey the challenges on the horizon to the board for months, but my pushes to bring fresh perspectives and additive skill sets to the board have been unsuccessful,” he said.
Operating Experience
The board defended Patenaude, who has served as a director since 2021, as “a nationally recognized real estate and housing policy expert with a four-decade record of success.”
Ozonian, a 67-year-old Orange County resident, has “significant and relevant operating experience,” Hsieh said.
Among other roles, Ozonian is CEO of Williston Financial Group, a title insurance company, and is the lead director at LendingTree Inc. (Nasdaq: TREE). He was also chairman and CEO of Prudential Real Estate and Relocation Services, where annual sales volume expanded to more than $200 billion. He’s worked in executive real estate roles at Carrington Capital Management, Coldwell Banker, Realtor.com and Bank of America.
“I have come to know Mr. Ozonian professionally over the years and have great respect for his accomplishments in—and deep knowledge of—the real estate and consumer fintech industries,” Hsieh said.
The company hasn’t yet revealed a date for its fourth-quarter earnings nor for its next annual shareholder meeting.
