Orange County, whose $221 billion economy is roughly the size of Portugal’s, will see plenty of excitement this coming year in its financial sector.
Be on the lookout for anything from comments by world-famous investors to a company claiming artificial intelligence supremacy to a new $5 billion industry working without banks.
Stories to Watch
• Is Bill Gross passing the bond king crown to his successor, Dan Ivascyn?
Gross and the firm he co-founded, Newport Beach-based Pacific Investment Management Co., settled their dispute over his 2014 departure.
Now investors are watching to see if he can regain the flair that made him Morningstar Bond King of the decade in the 2000s. Into December, his Janus Henderson Global Unconstrained Bond Fund has trailed its benchmark and similar funds at PIMCO. He now manages $3 billion, double the amount from early last year, but still a fraction of the amount he used to oversee.
Meanwhile, PIMCO has righted its ship as assets have stopped exiting following Gross’ departure. The firm reported $1.69 trillion as of Sept. 30, up about $260 billion since the end of 2015.
The question now becomes whether Ivascyn, who replaced Gross as chief investment officer, can continue as a rising star. Morningstar ranks his Income Fund, which he co-manages with Alfred Murata, No. 1 for both the trailing five- and 10-year periods. Thus far this year, it’s ranked eighth with an 8.29% return. The fund, with $105 billion in assets, is now the biggest at PIMCO.
“Investors around the world can’t get enough of Pimco’s Dan Ivascyn,” reported Bloomberg News in September.
• Will Banc of California and Opus Bank be successful in their turnarounds?
Banc of California’s Steven Sugarman exited the chief executive job in January on the same day the Securities and Exchange Commission announced an investigation into the bank’s handling of allegations by an anonymous blogger. The results of that investigation have yet to be made public.
A proxy battle ensued, and six of the nine-member board of directors are new. After Doug Bowers became chief executive in May, he told investors the bank needed a lot of work. Two top former executives are suing the Santa Ana-based bank, alleging irregularities involving bonuses, accounting and sexual shenanigans.
The stock has a lot of doubters. About 53% of the average daily trading volume is short selling, which “is quite high,” said Tom Ronk, co-founder of Buysin.com Inc., a short research firm based in Corona del Mar.
This fall Opus hired a new chief financial officer and agreed to pay $17 million to settle a shareholder lawsuit over disclosures about the quality of its lending. It’s also suing smaller Irvine-based rival First Foundation Inc. over alleged theft of employees.
Thus far, Wall Street favors Opus—whose shares have climbed almost 50% since a 52-week low in March—over Banc of California, which is up about 1.5% since Bowers took over in May.
• Wall Street will closely monitor several OC-based companies for their potential.
Will Irvine-based Chromadex Corp., a maker of ingredients for health supplements, continue to attract top-tier investors, which this past year included Chinese billionaire Li Ka-Shing and Iconiq Capital LLC, whose investors include Mark Zuckerberg and Henry Kravis? Chromadex was the third best-performing stock in OC this year, almost doubling in price to $6.51.
Investors will watch whether Veritone Inc., which claims to have the world’s best data scientists this side of Google, can show revenue in its nascent artificial intelligence unit. The Irvine-based company’s stock climbed above $74 before famous short trader Andrew Left said it was a $20 stock; as of press time, it was hovering above $23.
California’s legalization of recreational marijuana puts plenty of expectations on Santa Ana-based Kush Bottles Inc., which supplies paraphernalia, and Irvine-based Terra Tech Corp., which grows and distributes cannabis. The industry may generate $5 billion in cash in 2018 in California alone, all without the help of banks to manage the money (see story, page 1).
• Will OC continue to shine in nonbank mortgage lending?
Four of the 25 largest firms in the U.S. call OC their headquarters. In 2016, those firms originated $58 billion in retail loans; each outgrew the market average of 19%.
The local industry has seen some hiccups this year as interest rates rose, causing a reduction in business for some.
Stearns Lending LLC cut 159 jobs, about a third of its OC workforce as it resized itself. The firm intends to retain its Santa Ana headquarters. Banc of California jettisoned its home mortgage unit and cut half of its workforce, saying the industry was too volatile and not profitable enough.
Investors will watch if loanDepot LLC, which was born in 2010 and now has more than $1 billion in annual sales, goes public or if its original backers sell their stakes. In 2015, it canceled an initial public offering that would have raised $621 million.
• How will OC companies react to the expected U.S. tax reform? Will top entrepreneurs and executives stay in California, which is facing a steep tax hike if certain federal deductions are eliminated? Will they expand their OC businesses or decide to invest in more tax-friendly states like Texas?
The potential increase in state taxes also leads to questions about whether Republican congressional representatives can hold onto their seats.
Last Year’s Stories
Last year, we got a couple of predictions right, one wrong and one half-right.
We predicted a handful of OC-based credit unions would merge. That didn’t happen.
We expected loan growth. OC-based commercial banks did grow their assets 14% to $36 billion in the 12 months ended June 30. But that paled in comparison to the 39% spurt last year and 38% growth the prior year. The main reasons were decisions by Banc of California and Opus Bank to pull back on lending. We did predict good things for Carpenter & Co., which completed the sale of two of its banks this year to Pacific Premier Bancorp Inc. of Irvine.
We also said to watch new PIMCO Chief Executive Emmanuel Roman, who was hired in 2016. As noted previously, PIMCO is on a roll.
