Bryan Sullivan, who became CFO of loanDepot, a large nonbank consumer lending firm, about nine months ago, has a rare background for a finance chief.
Rather than acquiring experience in public accounting or corporate operations or strategy, Sullivan has spent 17 years managing investments for financial services outfits that have included Goldman Sachs and FBR. Most recently, he spent two years as a lead private equity portfolio manager at Pacific Investment Management Company (PIMCO).
Different as posts in private equity and corporate finance may seem, Sullivan has observed just one major difference. “As an investment manager, you yell at your operating team and say, ‘Make more money. Why can’t we go do this, that, and the other thing?’ he observes.
Now on the CFO side, with substantial operations responsibilities himself, Sullivan has gained “a very strong appreciation that it’s just not that easy. There’s no magic button. There’s actual real work that goes into it,” he says.
Gaining an appreciation of the complexities involved in hitting the finance targets of a single company has given him a better grasp of the CFO role than when he was merely bossing private equity finance managers around.
On the other hand, Sullivan’s investment management experience has provided him with benefits finance chiefs with different résumés might not possess. Because he can “speak their language,” he says, “you can talk the talk with investors when you’re out on the road selling different types of products or offerings for the company.”
Indeed, he has a bevy of different investors and lenders he must work with to put together backing for the personal and home purchase, refinancing, and equity loan products loanDepot offers consumers. The backers include Fanny Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration, and bankers and company shareholders.
The lender’s largest shareholder, Anthony Hsieh, loanDepot’s founder and its chief executive, launched the company in 2010 in the wake of the financial crisis. Parthenon Capital, a private-equity firm, owns a minority position, and the company’s management outside of Hsieh owns about 10% of the company.
All that was about to change in 2015, however, when the firm, whose revenues that year were just shy of $930 million, was gearing up to go public. But given the low pricing of the IPO market, the board decided to pull the plug in November, “at the last minute,” says Sullivan. Nevertheless, he adds, “it’s always an option for us to reevaluate that if the market’s available.”
CFO interviewed Sullivan in May. Edited excerpts of that conversation follow.
What prompted your founder to get into the nonbank lending business in 2010?
The financial crisis caused a lot of the large nonbank lenders that were synonymous with home lending in the early 2000s, like Countrywide and Ameriquest, to go away. There was still a huge opportunity in fulfilling the needs of consumers, and banks were also getting beat up by regulators and getting hit with new capital requirements. And their core focus was going away from being consumer facing.
Our CEO saw that as a huge opportunity to capture some market share. There just weren’t any real players out there. The plan was to get to scale rather quickly, which he was successful in doing, to be able to capture market share. The cost of being in this business if you don’t have scale is extremely high. We’ve been able to capture market share from both the front end and the back end: from banks pulling back and from smaller people not being able to be competitive in the space.
Describe loanDepot’s business model.
We’re one of the largest consumer lenders in the country, primarily focused on home loans, but also offering home equity and personal loans to just about any consumer who’s out there. Our main consumers are the ones who aren’t focused on by the banks.
Which borrowers are you focusing on that banks might reject?
The primary area of focus for us is on consumers that have sub-760 FICO scores. Not to say that we don’t do anything above that. But the banks seem to be focused on consumers that are in the 760 and up FICO area. Our core consumer is probably at 680 to 760, which is a huge cohort of the U.S. population.
Is this what you would call subprime loans?
Not at all. These are still highly qualified borrowers. In our view subprime, or nonprime, is somebody that’s sub-660. The substantial majority of our mortgages are well in excess of 730 FICO. But when I tap into FHA, which is a government product, they’re typically a little bit lower FICO borrowers, which drags down our average.
Your background working on the investor side at PIMCO is fairly unusual for a CFO. Can you describe how your investor background fits into your current job as CFO?
I was in the private equity world and my job there was to manage portfolio companies. My job was to make sure that the companies that I owned and invested in were profitable and that they were doing the things that they said they would do. Which is kind of the same thing as being the CFO, although you’re managing many portfolio companies instead of just one. Now I think about what investors would like about a company like ours and try to put those thoughts into how we’re developing our business.
What’s your biggest accounting challenge?
For our particular industry the hardest thing to do is fair value accounting. It’s modeling a return for something that you think will happen in the future. That may or may not end up being the true economic value of that asset at the end of the day, the true cash receipts.
What most keeps you up at night about the job?
That we make the right decisions not only for the consumers but also the employees that entrust us with making the right decisions on their behalf so that they continue to have a job and a paycheck. It weighs on me. This is my first go round on the operating side. So I think it about it quite a bit.