RCS Capital plans to post $307M loss for the third quarter

RCS Capital Corp., the brokerage firm previously controlled by Nicholas Schorsch, said Wednesday it expects to report a third-quarter loss of more than $300 million due to a $331.7 million impairment, or write-down of goodwill and intangible assets.
RCS Capital, or RCAP, did not give details regarding which assets it is writing down, according to a filing with the Securities and Exchange Commission. The company, which has not yet released full quarterly earnings, said it expects to report a net loss of $306.8 million for the quarter ended Sept. 30, compared with a loss of $37 million in the same period a year earlier.
The company also expects a net loss of $399.7 million for the first nine months of 2015 compared with a net loss of $183.6 million over the same period in 2014. In aggregate, an impairment charge of $488.5 million was recorded for the first nine months of the year.
“The principal element contributing to the increased losses was a determination by the company that, as a result of significant and sustained decline in the company’s market capitalization and the company’s additional reductions in the expectations of future growth and profitability for certain reporting units, (RCAP) determined that it was appropriate to test its goodwill and intangible assets for impairment” as of the end of September, according to the filing.
FREE FALL
RCAP’s share price has been in free fall for the past year after it was revealed in October 2014 that another company controlled by Mr. Schorsch, American Realty Capital Properties Inc., now Vereit Inc., said that it had intentionally left uncorrected accounting misstatements over the first half of 2014.
In midday trading Wednesday, the company’s stock was down 9.3%, trading at 43 cents. Over the past 12 months, RCAP shares are down 96.2%.
(More: How Nick Schorsch lost his mojo)
When asked which of the more than 12 brokerage and asset management firms under the RCAP umbrella received the impairment charges, company spokesman Andrew Backman declined to comment, adding that any details will be in RCAP’s quarterly earnings report, which is scheduled to be filed prior to or on Monday. Wednesday’s SEC filing was a notification of a late earnings filing.
As of June 30, RCAP reported $1.78 billion of goodwill and intangible assets. The announced impairment charge of $331.7 million represents a write down of 18.7%.
“That’s significant,” said Gordon Yale, a forensic accountant.
This week has been tumultuous for RCAP and the 9,500 financial advisers who work at the broker-dealers under the umbrella of the firm’s Cetera Financial Group.
DEAL OFF
On Monday, Apollo Global Management and AR Capital, Mr. Schorsch’s real estate management company, called off their announced transaction in which Apollo was to acquire a majority stake for $378 million. At the same time, Apollo said it was moving forward with buying RCAP’s wholesaling broker-dealers, including Realty Capital Securities and Strategic Capital, for $6 million in cash, considerably less than the $25 million it had agreed to pay earlier.
Indeed, Apollo bought those wholesaling broker-dealers for far less than what RCAP and Mr. Schorsch, its former executive chairman and the architect of its two-year buying binge, paid for them. According to an SEC filing, RCAP paid a combined $77.5 million in cash and stock for Strategic Capital, alone.
Meanwhile, Cetera Financial CEO Larry Roth on Monday told reps and advisers that a half a dozen potential investors are kicking its tires and that a new owner or significant private equity investor will be in place by year-end.
In a development that could smooth any deal for RCAP or Cetera, Mr. Schorsch granted the proxy to vote the single B share of RCAP, which is the controlling share of the company, to the independent board of directors of RCAP.
On Tuesday, Moody’s said it had put RCAP’s debt under review for a potential downgrade.