Compass, a major player in the real estate market, saw its stock take a significant hit on Wednesday following news that the New York attorney general is investigating the company for antitrust issues.
Immediately after the announcement, Compass’s shares dropped by 12.69%, settling at $7.54 during midday trading. However, by Thursday morning, the stock had recovered somewhat, rising to $7.92.
Jason Helfstein, a financial analyst with Oppenheimer, noted that various factors likely influenced the stock’s reaction. “The investigation news definitely played a role,” he suggested, adding that overall real estate stocks were also feeling the pressure due to concerns about oil prices and rising interest rates. He described Thursday as a relatively positive day for tech stocks.
It may take some time for the market to fully digest the implications of the attorney general’s investigation and understand its impact on Compass’s stock price.
The office of Attorney General Letitia James has confirmed that they are actively looking into Compass, which has become the largest residential real estate company in the U.S., employing about 340,000 real estate professionals.
Reports indicate that, as part of their inquiry, officials from the AG’s antitrust division reached out to executives at several of New York City’s largest securities firms for information pertinent to the case.
Helfstein pointed out that both Compass and Anywhere, which owns brands like Corcoran and Sotheby’s International, accounted for roughly 40% of Manhattan’s real estate trading volume last year. This could be problematic under current regulations that aim to prevent substantial competition from being eliminated by mergers.
He referred to guidelines from the Department of Justice and the Federal Trade Commission, which clearly state that significant mergers may violate the law if they hinder competition.
While there’s uncertainty about whether Compass will face charges, Helfstein mentioned, “It’s possible they could arrive at a conclusion similar to the one reached by the federal authorities.”
In September, executives from Compass and Anywhere announced a merger plan, which is undergoing review by the Justice Department. Although antitrust officials initially pushed for an investigation, the deal was ultimately approved by senior officials.
On January 9, Compass completed a substantial $1.6 billion acquisition, prompting remarks from Senator Elizabeth Warren about how the approval came surprisingly quickly. The company later reported that the deal generated $1.2 billion in revenue during the first quarter.
