Chimera Investment Corporation (CIM)

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Chimera Investment Corp. (CIM)

Q4 2008 Earnings Call

February 10, 2008 10:00 am ET

Executives

Matthew Lambiase - CEO

Alex Denahan - CFO

Analysts

Steve DeLaney - JMP Securities

Andrew Wessel - JPMorgan

Ken Bruce - Bank of America-Merrill Lynch

Jim Young - West Family Investments

Bose George - Keefe, Bruyette & Woods

Douglas Harter - Credit Suisse

Ben Atkinson - Gagnon Securities

Jordan Hymowitz - Philadelphia Financial

Joe Stieven - Stieven Capital

Bose George - Keefe, Bruyette & Woods

Presentation

Operator

Good morning and welcome, ladies and gentlemen, to the fourth quarter earnings call for Chimera Investment Corporation. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

This earning 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 the forward-looking statements due to a variety of factors, including but not limited to, our ability to obtain financing arrangements; general volatility of the markets in which we invest; interest rate mismatches between our mortgage loans and mortgage-backed securities and our borrowings used to fund such purchases; changes in interest rates and mortgage payments rates; effects of interest rate caps on our adjustable-rate mortgage-backed securities; rates of default or decreased recovery rates on our investments; prepayment of mortgage and other loans underlying 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 governmental regulations, tax law, and rates and similar matters; availability of investment opportunities in real estate-related and other securities and market trends in our industry, interest rates, the debt security markets, or the general economy.

For a discussion of the risk 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 publicly release the results of any revisions, which may be made to any forward-looking statements to reflect the occurrence of unanticipated or events or circumstances after the date of such statements.

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

Matthew Lambiase

Thank you, Beatrice. Good morning, and welcome to the fourth 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 Chief 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; and Jay Diamond, Managing Director of FIDAC and a director of Chimera.

We are here today to review the results for the fourth quarter of 2008 and answer any questions that you may have, and before we take your questions, I’ll make a few general comment and have Alex review the quarter. For far too many, 2008 will not have passed fast enough. It was a year of tremendous asset volatility topped up with massive governmental capital injections into the banking system. Chimera took its lumps through the period but emerged on solid footing.

Despite the difficult environment, or perhaps more accurately because of it, the company successfully raised new equity in late October. Management disclosed and executed on a defensive strategy to invest the new capital into Agency MBS on an unlevered basis and slowly ramp non-agency asset purchases. We thought the market would have another wave of volatility and we waited to see more clarity on number of fronts; turned out to be a wise decision.

In November, Treasury announced that they were not going to use the newly created TARP program to buy mortgage assets as previously anticipated by the market, and in December several large banks came under pressure, both of which contributed to increased price volatility in the last half of the quarter.

To make matters more interesting, subsequent to year-end, new bankruptcy mortgage cram-down legislation is being contemplated in Washington, and has once again added uncertainty to the market. Chimera, like other participants, is waiting to see the complete language of the legislation. Nonetheless, there are aspects of the market that may benefit from legislative changes.

The US government is expending extraordinary effort to add liquidity to the housing market. Some efforts such as the FDIC Bond Guarantee Program have started to thaw out parts of the non-Agency MBS markets. Banks who issue these guaranteed bonds are using the proceeds to fund their consumer lending, and in doing so freeing up cash flow that can now be directed towards the secondary markets.

So far this year, we’ve seen a much more pronounced bid from banks in the prime MBS market and prices have increased accordingly. The rising market prices for prime jumbo secondary MBS that we’ve seen so far this year may be the first stage of a recovery that’ll make credit available once again to jumbo borrowers and help stabilize home prices.

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