CEO's Resignation May Portend Stonegate's Pursuit of an Acquirer: Analyst

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The resignation of Stonegate Mortgage Corp. founder and CEO Jim Cutillo will likely result in either the quick hiring of a replacement CEO to execute Stonegate's business plan or the company being acquired, according to analysts at FBR Capital Markets.

"Stonegate has disappointed investor expectations broadly, and a change was needed for a restoration of confidence, in our opinion. This management change forces the company's hand to clean up the business in rapid fashion," analysts said in an Aug. 31 note to investors.

"Further, should the company not achieve revenue growth to match its current expense base, the company would likely pursue potential acquirers," analysts said. "With shares trading at material discounts to our estimate for marked and existing tangible book value, we believe the company could benefit from either outcome."

Stonegate's stock closed up $0.14, or about 2%, to $7.21 per share Monday.

Richard Kraemer, board chairman of Indianapolis-based Stonegate, will serve as interim CEO when Cutillo's resignation takes effect Sept. 10. In addition, the nonbank lender and servicer has hired James Smith to serve as president and chief operating officer and reporting to Kraemer, beginning Sept. 3. Smith has been the director of U.S. mortgage operations at Wipro Limited since June 2013. Previously, he was a senior vice president at Bank of America, overseeing residential mortgage fulfillment.

Cutillo will serve as a consultant to the company for six months to assist with the transition. His resignation comes less than a year after the Indianapolis Business Journal reported that Indiana University officials said Cutillo did not earn a degree from the school as his biography on Stonegate's website had claimed.

"The strategic investments we have made in technology have positioned the company for growth and success, so now is the right time for me to leave Stonegate," Cutillo said in an Aug. 31 press release. "I am looking forward to working with Rich, Jim and others to transition the day-to-day leadership of the company and will be redirecting my entrepreneurial energy on a new endeavor going forward," Cutillo said in a statement.

A Stonegate spokesperson declined to comment further on the resignation.

Kraemer, who has more than 35 years' experience in financial services and mortgage banking, will continue to serve as Stonegate's chairman in addition to overseeing day-to-day management of the company, "until the search for a permanent CEO with the requisite leadership and mortgage industry experience is completed," the company said.

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