Broker-dealer built by Nicholas Schorsch nearly doubled first-quarter loss from a year ago, thanks to weakness in the wholesale distribution of investment products.
On the back of a sharp slump in sales of nontraded real estate investment trusts, RCS Capital Corp. reported a pro forma net loss of $13.5 million for the first quarter of 2015, nearly doubling the loss of $7.4 million in the first quarter of 2014.
Driving the loss was weakness in wholesale distribution of investment products, according to the company's quarterly report,
which was released Thursday before the market opened. Pro forma revenue from wholesale distribution was $89.1 million in the quarter, a 50% decline from the same period a year earlier. Equity sales were $1.1 billion for the first three months of the year, a drop of 54% when compared with last year.
Revenue for the entire company was $602.2 million for the first quarter, “down 11% over the year-ago quarter primarily due to lower equity capital raised in the wholesale division,” according to a company statement.
RCS Capital Corp., or RCAP, is the retail and wholesaling broker-dealer holding company constructed by former nontraded REIT czar Nicholas Schorsch, who resigned under a cloud as the company's executive chairman last year. He remains its largest shareholder.
A related company, the giant net-lease REIT, American Realty Capital Properties Inc., or ARCP, reported in October it had intentionally not corrected a $23 million accounting error from the first half of 2014. Mr. Schorsch was the chairman of ARCP at the time, but resigned from the company in December.
The problems at ARCP sent RCAP into a tailspin. Its stock has dropped 58.5% since the end of October and was trading at $8.18, down 3%, at midday Thursday. In November, a large number of broker-dealers and clearing firms temporarily halted sales of products distributed by RCAP's wholesaling firm, Realty Capital Securities. Many, but not all, of those firms have resumed selling the products.
While the first quarter saw a slump in sales of Realty Capital Securities products, the second quarter looked brighter, said Bill Dwyer, CEO of Realty Capital Securities, on a conference call with analysts Thursday morning. He noted that wholesaling raised $457 million in April, and that the company anticipates liquidity events of three nontraded investment products in the coming months. At the same time, three Realty Capital Securities products recently halted raising equity, the first step to reaching a liquidity event. Realty Capital Securities has also reduced expenses in the first quarter, Mr. Dwyer said.
While RCAP's wholesaling side struggled in the first quarter, its retail business, Cetera Financial Group, saw positive results. It added 823 total financial advisers in the quarter ending in March, which included advisers from its VSR Financial and Girard Securities acquisitions. Cetera also reported $240.3 billion in assets under administration, an increase of $15.4% from the same quarter a year earlier.
