Annaly Capital Management (NLY)
Q4 2012 Earnings Call
February 07, 2013 09:00 AM ET
Wellington Denahan-Norris - VC, Co-CEO and CIO
Kathryn Fagan - CFO and Treasurer
Steve DeLaney - JMP Securities
Rick Shane - JPMorgan
Bill Carcache - Nomura
Steve Maltz - Jefferies
Mike Widner - Stifel Nicolaus
Arren Cyganovich - Evercore
Jasper Burch - Macquarie
Previous Statements by NLY
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At the request of the company, we will open the conference up for questions and answers after the presentation.
This earnings call may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements, which are based on various assumptions, some of which are beyond our control, may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as may, will, believe, expect, anticipate, continue or similar terms or variations on those terms or the negative of those terms.
Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors including, but not limited to, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability of mortgage-backed securities for purchase, the availability of financing and, if available, the terms of any financings, changes in the market value of our assets, changes in business conditions and the general economy, changes in governmental regulations affecting our business, our ability to maintain our classification as a REIT for federal income tax purposes, risks associated with the broker-dealer business of our subsidiary, risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory business.
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 most recent annual report on Form 10-K and all subsequent quarterly reports on Form 10-Q. We do not undertake, and specifically disclaim, any obligation to publically release the result 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’ll now turn the conference over to Wellington Denahan, Chairman and Chief Executive Officer. Please proceed, Ms. Denahan.
Thank you, Andrew. Good morning and welcome to the Annaly fourth quarter earnings call. Joining me on the call today is our CFO, Kathryn Fagan. I want to briefly recap the market backdrop over the past quarter and I will now start by reminding everyone that the Federal Reserves weekly purchases of the agency mortgage-backed securities exceed the amount of new originations each week which has driven volatility to record low kept overall dollar prices elevated and compressed spread.
The outright purchases by the Fed have also put strains on the supply of high quality collateral in the REPO markets resulting in attractive financing rates for collateral provides like us.
The recent selloff has been a welcome event and we look forward to more of the same. Mortgages have recently come off their highs by an average of about 2 points which bodes well for spreads going forward.
Chatter out of the Fed more frequently incorporates talk of exist for the January minutes relief throughout February 15 will be of great interest. After three bouts of quantitative using, the housing market has gotten off its back and looks to be moving to stronger footing while the job market seems to have stabilized.
All this progress comes on an economic price. The challenges of today’s market are far reaching despite desperate public pension fund are being enticed to engage in the risk parity trade and some practitioners are calling it. Well, large corporations are being forced to divert otherwise economically productive capital to sure a pension plans that have been battered by the low interest rates.
As evidenced in the most GDP numbers, this is not well for future demand. Regulatory reform has met with some cold reality. The collateral needed to post on directive contracts may far exceed the collateral available to do so. The Basel committee on banking supervision expanded by four years to date for full compliance with its liquidity coverage ratio and loosened rules on what constitutes high quality liquid assets when they realize what some of consequences maybe.
As policy makers in the markets worked their way through this (inaudible) I think we can all agree that rates have returned on going to be under pressure for the foreseeable future. But before I begin discussing the relief, I want to briefly comment on the corrective transaction. This purposed transaction represents a major step for us to expand our presence in the commercial mortgage space. Over the last four years, we have been participants in the commercial space to our public equity ownership in (inaudible). If successful this transaction will not only provide us with attractive cash-on-cash returns but also helped simplify our approach to diversifying our capital allocation. As we expand our capital allocation into assets other than just agency mortgages, we understand the need for increased disclosure on all of our business lines. So starting this quarter we have included a supplemental presentation along with our relief. I was focus on a couple of key data points and some of the supplemental information and then answer questions following.