I still haven't managed to dig through everything, and it is clear that RAS management tried to downplay earnings relative to the many changes that occurred in its portfolio this quarter. That may not have inappropriate, but dropping adjusted income as a forward measure was. They appeared to have covered taxable income in other ways and to have overaccentuated the quarters earnings, much of which can be viewed as a one time gain against the the convertible purchase. I sure that seemed like a good idea, but it is somewhat misleading. That said, lets go through the high points:

1 - RAS basically broke even for the quarter when you exclude one time events. I haven't figured out whether it was in green yet (I plan to do an "adjusted earnings" computation that excludes the effects of the one time gain), but if it is, it isn't by much. That would obviously be worse than past quarters, but its impossible to know if it means much of anything at this point. If you know you have a big one time game, you can use it to cover one time expenses. What is clear is that RAS should have been much more profitable than "break even" suggests based on its interest margin, rental income, and fees. Figuring that out will require some digging.

2 - The reported earnings (69 cents) made for a nice fantasy insofar as they were as large as one would have expected from RAS before the Taberna acquisition. They look blowout until you look under the covers. The reality is that the one time gain offsets roughly two thirds of the quarters one time loss and the quarters earnings make up the difference.

3 - As expected, interest income and expense were both down substantially, reflecting the the flurry of sales and deconsolidations that happened just before and after the end of 2Q. Interest income was $130.4M in 2Q. Its 56.4M in 3Q. That's an overall decline of $74M in interest income. Interest expense was also down, from $91.8M to $35.3M, a decline of $56M. The decline in expense was not as great as the decline in income, so while net interest margin (the amount that RAS earns from such investments) also declined (from $38.5M to $20M), percentage interest margin improved, from 29.5% to 35.5%. RAS is keeping about 35 cents of every dollar of interest it collects on its loan portfolios.

4 - RAS' recourse debt has is down substantially. It totaled roughly $617M at the end of 2Q. Its down to $438M at the end of 3Q. A piece of that is in the expected effects of the big exchange of convertible notes at the end of 2Q. The effect of that transaction, in which over $90M of convertible notes was exchanged for $43M of senior secured notes (at a higher interest rate). The $47M extinguishment of debt that resulted from that transaction is dwarfed, however, by the decline in debt in the secured credit facilities, which went down over $100M, from $162M to $51M. A lot of this decline is probably associated with warehoused residential loans.

4 - Assets under management remain in excess of $10B (down from a peak of over $14B. Given the sale of the residential portfolios, that makes a lot of sense. What is surprising is that the decline wasn't larger.

Continued in next post.