NLY - Annaly Capital Management

[Spekulatius]

I think some mortgage funds did. blow up and had to raise capital in 3008 but I don’t recall details.

 

988 years in the future and they are still blowing up. Nobody learns from history... /shakes head

 

I have alway been forward looking.The archeologists in the future will realize the wisdom of my ways.

[TwoCitiesCapital]

http://www.mortgagenewsdaily.com/mortgage_rates/blog/939595.aspx

 

Chart @ the bottom of the page shows recent price action of 30-year 2.5% MBS. Obviously this is just one coupon out of the coupon stack, but despite all of the volatility it's back near all-time highs.

 

This is the part of the book the NLY is levered 9:1 against with non-agency MBS, CRE, and corporates all being 5x or less in leverage to get to the average of 7:1 for the entire portfolio.

 

The agency book should give Annaly enough stability to withstand volatility on the non-agency pieces of it's book and it can also reduce leverage by selling agencies now that prices appear to be getting more reasonable with Fed buying.

[DeepValuePlay]

http://www.mortgagenewsdaily.com/mortgage_rates/blog/939595.aspx

 

Chart @ the bottom of the page shows recent price action of 30-year 2.5% MBS. Obviously this is just one coupon out of the coupon stack, but despite all of the volatility it's back near all-time highs.

 

This is the part of the book the NLY is levered 9:1 against with non-agency MBS, CRE, and corporates all being 5x or less in leverage to get to the average of 7:1 for the entire portfolio.

 

The agency book should give Annaly enough stability to withstand volatility on the non-agency pieces of it's book and it can also reduce leverage by selling agencies now that prices appear to be getting more reasonable with Fed buying.

 

Are you sure the link is correct? I don't see a price action chart...

[TwoCitiesCapital]

http://www.mortgagenewsdaily.com/mortgage_rates/blog/939595.aspx

 

Chart @ the bottom of the page shows recent price action of 30-year 2.5% MBS. Obviously this is just one coupon out of the coupon stack, but despite all of the volatility it's back near all-time highs.

 

This is the part of the book the NLY is levered 9:1 against with non-agency MBS, CRE, and corporates all being 5x or less in leverage to get to the average of 7:1 for the entire portfolio.

 

The agency book should give Annaly enough stability to withstand volatility on the non-agency pieces of it's book and it can also reduce leverage by selling agencies now that prices appear to be getting more reasonable with Fed buying.

 

Are you sure the link is correct? I don't see a price action chart...

 

Chart still shows for me. 30 year 2.5% @ 102-06 after being as high as 103.

[aglittell]

NYMT, MITT, and IVR announced they are no longer able to meet margin calls. It seems like we will have broad sweeping mREIT failures, once again concentrated in companies with more credit exposure employing lots of leverage.

 

Compared to NLY, each of these companies has more leverage in their non-agency books. MITT has over 4 turns on non-agency MBS and 3 turns on commercial credit, and IVR employs over 5 turns on non-agency MBS and commercial credit.

 

NLY's has leverage of 2.6 turns on non-agency MBS and 2.5 turns on commercial credit.

[TwoCitiesCapital]

NYMT, MITT, and IVR announced they are no longer able to meet margin calls. It seems like we will have broad sweeping mREIT failures, once again concentrated in companies with more credit exposure employing lots of leverage.

 

Compared to NLY, each of these companies has more leverage in their non-agency books. MITT has over 4 turns on non-agency MBS and 3 turns on commercial credit, and IVR employs over 5 turns on non-agency MBS and commercial credit.

 

NLY's has leverage of 2.6 turns on non-agency MBS and 2.5 turns on commercial credit.

 

Might be even less now. NLY supposedly sold $100+ million of non-agency MBS this past weekend.

 

Not that I like forced sellers in this market, but if the concern is leverage on their non-agency book and a wipe out of equity, anything that reduces risk/leverage should get this back closer to NAV.

[aglittell]

Anyone noticing the moves today in mREITS?

 

ARI - + 72%

MFA - + 223%

TWO - + 58%

MITT - +53%

NLY - + 25%

 

Counter-parties agreeing to forbearance? Feds unlimited buying of MBS and tightening of spreads did the trick?

[Kaegi2011]

Anyone noticing the moves today in mREITS?

 

ARI - + 72%

MFA - + 223%

TWO - + 58%

MITT - +53%

NLY - + 25%

 

Counter-parties agreeing to forbearance? Feds unlimited buying of MBS and tightening of spreads did the trick?

 

I don't have access to MBS data - did the spreads blow out or something?  Can't imagine a market that big can be that inefficient given it's all USGov risk...

[TwoCitiesCapital]

I wish NLY and AGNC would start serious share repurchases.

 

Surely getting a 50-60% ROIC on buying shares at significant discounts to a growing NAV is more attractive than levering up a 3% coupon 7x? Right? And they don't even have to cancel the shares - just hold them until shares re-rate to NAV and begin offloading them to repurchase the mortgage portfolio. Shareholders happy, management happy, everyone is happy.

 

 

[ValueMaven]

What is the difference between Annaly and Blackstone mortgage trust?  Also, NLY has some interest preferreds which were KILLED 2 weeks ago - $25 par, that traded as low as $7, and recovered all the way back to $18 or so.  Those could be interesting at some point.

[thepupil]

What is the difference between Annaly and Blackstone mortgage trust?  Also, NLY has some interest preferreds which were KILLED 2 weeks ago - $25 par, that traded as low as $7, and recovered all the way back to $18 or so.  Those could be interesting at some point.

 

BXMT lends at an average of 65% LTV to transitional or “value-add” commercial properties; it then uses both single asset and corporate leverage for the 0-40% LTV portion (roughly) so shareholders effectively own a mezzanine tranche (40-65) on a diversified portfolio of commercial real estate that is neither super low quality nor “core”; all loans are floating rate and the type of borrower that prefers short floaters are the institutional version of “fix and flip” like BX itself.

 

I think BXMT is a poor risk reward, it’s down a lot but that’s because it was trading at 1.4x book beforehand. With 14% of the loan book in hotels and a lot of back leverage, I think the equity will see some hits. At 75% of book last I checked, it’s not that discounted for the embedded leverage. BXMT’s own senior securitization can be purchased for a bigger discount.

 

The offset is the sponsor quality. Blackstone will manage this as well as anyone, and it could consolidate all the other wounded soldiers and make better loans with less competition coming out of it.

 

I want to short it but BX sponsorship and the possibility of becoming an advantaged consolidator stops me.

 

NLY owns securities and a lot more agency MBS (some non agency too) but BCMT is pure commercial real estate (no govvy guaranteed paper)

[ValueMaven]

Whoa!!  Thank you -- what do you think about some of these NLY Prefs?  I doubt we see those mid-March prices again - just wondering ...

[thepupil]

Whoa!!  Thank you -- what do you think about some of these NLY Prefs?  I doubt we see those mid-March prices again - just wondering ...

 

because of liquidity and forced selling, virtual all preferred stocks saw a nice blow-out which offered some opportunities. to my detriment, I was most focused on regular REITs I already knew (day job + speed of sell-off didn't really allow for more).

 

I would prefer other collateral to any mREIT whether that be a BDC baby bond, an equity REIT or a bank because any mREIT is subject (to a greater degree than well-capitalized versions of the others) to the kindness of a bank (as illustrated recently).

 

I'd be inclined to be pretty harsh to the non-agency/credit exposure in your risk case and more confident in the agency stuff.

 

in all but distressed scenarios I don't like preferred stocks because they are negatively convex (rates/spreads down you get called, rates/spreads up you get creamed).

 

don't have more than that. things seem to generally calmed down a bit and the biggest forced seller /panic liquidation don't seem to be there. there's still some relative value. I like ARCC's bonds for example. you have to stress the hell out of their credit holdings to pierce them (read the bullish equity articles), but it's an unexciting 7% or so yield for 3-6 year maturities. but that didn't exist pre-covid. I think the risk of ARCC equity has materially changed over the past few months, but that the unsecured bonds probably hasn't to a huge degree.

 

[TwoCitiesCapital]

From Gundlach's presentation today.

 

Agency MBS +2.82% YTD

Non-Agency MBS -19.4% YTD

 

With the differential, we can understand why NLY is struggling - even at 10x on agency, the gain wouldn't be enough to offset the loss on non-agency so book value is shrinking. But book value isn't down anywhere near 40-50%.

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

[HJ]

From Gundlach's presentation today.

 

Agency MBS +2.82% YTD

Non-Agency MBS -19.4% YTD

 

With the differential, we can understand why NLY is struggling - even at 10x on agency, the gain wouldn't be enough to offset the loss on non-agency so book value is shrinking. But book value isn't down anywhere near 40-50%.

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

I don't know if you are counting how much they are losing on the hedging side.  I don't know what duration they use to hedge, 7 year swap rate went from 1.70% to 0.60%.  On 7 year, that's 7-8% in price, multiplied by whatever leverage that book is on to the equity.

 

 

[TwoCitiesCapital]

From Gundlach's presentation today.

 

Agency MBS +2.82% YTD

Non-Agency MBS -19.4% YTD

 

With the differential, we can understand why NLY is struggling - even at 10x on agency, the gain wouldn't be enough to offset the loss on non-agency so book value is shrinking. But book value isn't down anywhere near 40-50%.

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

I don't know if you are counting how much they are losing on the hedging side.  I don't know what duration they use to hedge, 7 year swap rate went from 1.70% to 0.60%.  On 7 year, that's 7-8% in price, multiplied by whatever leverage that book is on to the equity.

 

I don't know exactly what they're hedging with or what the outcome will look like, but they're also short swaps on a 3-month basis so any negative impact to their hedges is a positive impact to ongoing financing so there's going to be some cancelling out here.

 

Also, 3% levered 9x is +27% on the agency book so they should have plenty of flexibility to handle swap hedges and non-agency deterioration.

 

Honestly, I don't care if BV is growing by 1%, 5%, or 20%. I care about the gap to BV closing because these things are still doing fine and would be a 40-50% gain at these prices.

[HJ]

I actually went into their 10-K for a quick look.  As of year end, they had $74 billion notional swap outstanding, weighted average pay rate of 1.84%, 4.23 year average life.  They also hedge with treasury futures, net short $8.9 billion, 8.26 year average life.  Marked to market, I estimate them down $3.4 billion on swaps and $800MM on treasury futures, if they didn't trade the hedges.  That's using today's rate (110 bps down from year end).  Couple of weeks ago, it was probably more extreme.

 

I think they are through the worst of the liquidity squeeze, but if you mark to market their hedge book, it's a meaningful amount of their book value that they are down from year end.

 

 

[winjitsu]

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

From AGNC release today: "Tangible net book value per common share is estimated to be between $12.35 and $13.25, after deductions for common and preferred dividends declared through March 31, 2020, a year-to-date decline of approximately 25 - 30%"

 

Unless NLY gives another update, we could image BV has dropped even more given their larger non-agency portfolio.

[TwoCitiesCapital]

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

From AGNC release today: "Tangible net book value per common share is estimated to be between $12.35 and $13.25, after deductions for common and preferred dividends declared through March 31, 2020, a year-to-date decline of approximately 25 - 30%"

 

Unless NLY gives another update, we could image BV has dropped even more given their larger non-agency portfolio.

 

Yea, that's a bit more than I'd have expected given the performance of the mortgages themselves. Damn.

 

I guess I'm just shocked that the hedges have so dramatically outweighed the movement of the underlying.

 

I was expecting something closer to -10% on BV given NLY's update back in early March when everything was going haywire. Seems like they dramatically overhedged if the underlying securities/portfolio can be up 10-20% and they still managed to lose 25-30% of BV after netting out hedging moves....

[Artha158]

Good read.

https://www.thebeartrapsreport.com/blog/2020/03/30/mortgage-market-meltdown-2-0-implications-are-far-and-wide/

 

[TwoCitiesCapital]

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

From AGNC release today: "Tangible net book value per common share is estimated to be between $12.35 and $13.25, after deductions for common and preferred dividends declared through March 31, 2020, a year-to-date decline of approximately 25 - 30%"

 

Unless NLY gives another update, we could image BV has dropped even more given their larger non-agency portfolio.

 

Yea, that's a bit more than I'd have expected given the performance of the mortgages themselves. Damn.

 

I guess I'm just shocked that the hedges have so dramatically outweighed the movement of the underlying.

 

I was expecting something closer to -10% on BV given NLY's update back in early March when everything was going haywire. Seems like they dramatically overhedged if the underlying securities/portfolio can be up 10-20% and they still managed to lose 25-30% of BV after netting out hedging moves....

 

NLY estimates preliminary book value is ~$7.50 vs $9.66 at year-end for a roughly ~23% decline.

 

I don't know what surprises me more - that their losses are so far in excess of what I envisioned (largely as a result of mortgage spreads blowing out relative to treasuries it seems) or that AGNC performed the same as NLY despite not having anywhere near the same credit exposure.

[aglittell]

Trading at 60% of mid-range BV estimate per today's new release. 93% of the book is in Agency MBS, with leverage reduced and no issues meeting margin calls. Also noted their $1bln buyback program, about 16% of the market cap as of today. I also did not expect BV to decline by that much but the issues in Agency MBS appear to have subsided (spreads tighter w/ Treasuries given Fed buying and prepayment from lower rates unlikely given ZLB on short-end of curve).

 

AGNC is priced at 80% of BV given the mid range of their BV estimate from last week. The portfolio is pure Agency MBS but w/ more leverage.

 

I like this risk/reward setup. Already own some but think I will be adding here now that we have visibility. Most other mREITs had provided an update that facilitated pricing. After today's announcement, the blackbox of NLY's BV hit has cleared.

[ValueMaven]

Name is up huge -- good for them.  Pref's have doubled since last Friday.  Great example of price decline vs. fundmentals.  Prob will never see these prices again for NLY.  I thought that proactive shareholder letter was very well written as well

[TwoCitiesCapital]

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

From AGNC release today: "Tangible net book value per common share is estimated to be between $12.35 and $13.25, after deductions for common and preferred dividends declared through March 31, 2020, a year-to-date decline of approximately 25 - 30%"

 

Unless NLY gives another update, we could image BV has dropped even more given their larger non-agency portfolio.

 

Yea, that's a bit more than I'd have expected given the performance of the mortgages themselves. Damn.

 

I guess I'm just shocked that the hedges have so dramatically outweighed the movement of the underlying.

 

I was expecting something closer to -10% on BV given NLY's update back in early March when everything was going haywire. Seems like they dramatically overhedged if the underlying securities/portfolio can be up 10-20% and they still managed to lose 25-30% of BV after netting out hedging moves....

 

NLY estimates preliminary book value is ~$7.50 vs $9.66 at year-end for a roughly ~23% decline.

 

I don't know what surprises me more - that their losses are so far in excess of what I envisioned (largely as a result of mortgage spreads blowing out relative to treasuries it seems) or that AGNC performed the same as NLY despite not having anywhere near the same credit exposure.

 

NLY and AGNC both declared earnings yesterday. Decent results, dividends basically fine, and book values growing. AGNC estimates that book value is up 8% or so just in April despite changing repayment assumptions to be more onerous. Seems like underlying mortgages are stabilizing and spreads relative to treasuries/hedges coming back in line with what my expectations initially were.

 

Both still trade as substantial discounts to NAV despite the fact that NAV has growth 8% or so in just the past month.

[TwoCitiesCapital]

 

Can't understand why AGNC is down at all w/ 1% of portfolio in non-agency.

 

From AGNC release today: "Tangible net book value per common share is estimated to be between $12.35 and $13.25, after deductions for common and preferred dividends declared through March 31, 2020, a year-to-date decline of approximately 25 - 30%"

 

Unless NLY gives another update, we could image BV has dropped even more given their larger non-agency portfolio.

 

Yea, that's a bit more than I'd have expected given the performance of the mortgages themselves. Damn.

 

I guess I'm just shocked that the hedges have so dramatically outweighed the movement of the underlying.

 

I was expecting something closer to -10% on BV given NLY's update back in early March when everything was going haywire. Seems like they dramatically overhedged if the underlying securities/portfolio can be up 10-20% and they still managed to lose 25-30% of BV after netting out hedging moves....

 

NLY estimates preliminary book value is ~$7.50 vs $9.66 at year-end for a roughly ~23% decline.

 

I don't know what surprises me more - that their losses are so far in excess of what I envisioned (largely as a result of mortgage spreads blowing out relative to treasuries it seems) or that AGNC performed the same as NLY despite not having anywhere near the same credit exposure.

 

NLY and AGNC both declared earnings yesterday. Decent results, dividends basically fine, and book values growing. AGNC estimates that book value is up 8% or so just in April despite changing repayment assumptions to be more onerous. Seems like underlying mortgages are stabilizing and spreads relative to treasuries/hedges coming back in line with what my expectations initially were.

 

Both still trade as substantial discounts to NAV despite the fact that NAV has growth 8% or so in just the past month.

 

https://www.prnewswire.com/news-releases/agnc-investment-corp-declares-monthly-common-stock-dividend-of-0-12-per-common-share-for-may-2020-and-announces-estimated-tangible-net-book-value-of-15-22-per-common-share-as-of-april-30--2020--301059716.html

 

AGNC says tangible book value actually rose 12% in April. Now ~$15.22/share while the stock trades @ $12.40. Seems like as spreads normalize, the hedging losses that led to a -25% drop in NAV are reversing.

 

While unfortunate that rate volatility led to these things underperforming so dramatically, still seems like one of the lower risk bets in today's market given the discounts to NAV, the dramatically improving NAV figures, reduced leverage ratios, and the gov't guaranteed nature of the collateral.