Chimera Investment Corporation (CIM)

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Chimera Investment Corporation (CIM)

Q1 2008 Earnings Call

May 6, 2008 10:00 am ET


Matthew Lambiase – Chief Executive Officer, President

Alex Denahan – Chief Financial Officer

J. Diamond – Managing Director FIDAC, Director Chimera

Bill Dyer – Head of Underwriting


Steve Delaney – JMP Securities

Bose George – KBW

Peter Homans – Parkmans

Douglas Harter – Credit Suisse

Stephen Laws – Deutsche Bank

Joe Plevelich – Schneider Capital Management



Good morning and welcome ladies and gentlemen to the first quarter earnings call for Chimera Investment Corporation. (Operator instructions) This earnings call may contain certain forward-looking statements within the meaning of the Section 27A and the Securities Act of 1933 and in Section 21E of the Securities & Exchange Act of 1934.

Forward-looking statements are based on various assumptions, some of which are beyond our control, may be identified by reference to a future period or by the use of forward-looking statements terminology, such as: may, will, believe, expect, anticipate, continue or similar terms or variations on those terms of the negative of those terms.

Actual results could differ materially from those set in forward-looking statements due to the variety of factors, including, but not limited to: our ability to obtain financial agreements, general volatility of the markets in which we invest, interest rates mismatch between our mortgage loans and mortgage backed securities or our borrowings used to fund such purchases, changes in interest rates and mortgage payments.

Effect of interest rates kept on our adjustable rate mortgage backed securities, rates of defaults or decreased recovery rates on our investment payments or the mortgage and other loans underlining our mortgage backed or other asset backed securities, the degree to which our hedging strategies may or may not protect us from interest rate volatility.

Changes in government regulations, tax law and rates and similar matters, availability of investment opportunities in real estate related or other securities, market trends in our industry, interest rates, the debt securities market of the general economy.

For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward looking statements, see “risk factors” in our prospectus dated November 15, 2007 filed with the Securities & Exchange Commission.

We do not undertake and officially disclaim any obligation to publicly release the results of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

I would now like to turn the conference over to Mr. Matthew Lambiase, Chief Executive Officer of Chimera Investment Corporation. Please go ahead sir.

Matthew Lambiase

Good morning and welcome to the first quarter earnings call for Chimera Investment Corporation. I’m Matt Lambiase the CEO and President of Chimera and joining me on the call today are members of our senior management team, our CFO Alex Denahan, our Head of Investments Chris Woschenko, our Head of Underwriting Bill Dyer and also joining me today are Wellington Denahan-Norris, the Chief Investment Officer for FIDAC, J. Diamond a Managing Director at FIDAC and a Director of Chimera.

We’ll all here to review the results of the first quarter and answer any questions that you may have. I’d like to make a few general comments and then have Alex review the quarter. As you all know, Chimera is in the business to evaluate and manage credit risk in the residential mortgage market.

As a long term business model it’s tried and true. At the time of our IPO in November 2007, there were dislocations in the market resulting in investment opportunities not seen in over a decade. We made progress toward achieving our ramp up in return objectives in the first full quarter of operation and the dividend we declared reflects that progress.

We followed our plan to acquire attractively priced and stable cash flows on triple-A non-agency RMBS and recently originated, well-underwritten loans acquired from bank channels and other high quality lenders.

We put hedges in place to minimize interest rate risk and operating income was strong during the quarter. As we all know now, market conditions in the first quarter of 2008 only got more volatile. We saw a flurry of liquidations from CDOs and SIVs to start the year and that kept pressure on credit spreads.

Investors stayed on the sidelines and waited for more supply to hit the street as well as expected downgrades from the rating agencies. Dealer inventories are quite heavy and they begin to sell paper rather than provide much needed liquidity to the sector.

The non-agency cost basis relative to agency collateral continued to deteriorate and traded at historically wide levels during the quarter. The opportunities we discussed in our road show and the subsequent discussions with investors and analysts have only increased and the manner in which we realize these opportunities will naturally adjust to the new operating environment.

While our relatively recent entry to the market has been fortunate, nevertheless, the market value of our assets has declined. But while we may have been early on price, we were not early on the credit work on our assets. In any event, no participant was immune from the market conditions in the first quarter.

We took a number of steps to protect investor’s capital from a rationalize risk assessment. Although we are running leverage on a relatively low level, no higher than 4:1 during the quarter, we sold some assets at a loss to reduce our exposure. In other words, we did absorb some short term pain in order to preserve our ability to achieve what we believe will be long term opportunities in our strategy.

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