Chimera Investment Corporation (CIM)

CIM 
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Industry: Consumer Services
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Chimera Investment Corporation (CIM)

Q2 2011 Earnings Call

August 2, 2011 11:00 AM ET

Executives

Matthew Lambiase – President and CEO

Christian Woschenko – Head, Investments

Alexandra Denahan – CFO

Rose-Marie Lyght – EVP and Co-Head Portfolio Management

Analysts

Jason Weaver – Sterne Agee

Bose George – KBW

Doug Harter – Credit Suisse

Stephen Laws – Deutsche Bank

Ken Bruce – Bank of America – Merrill Lynch

Daniel Furtado – Jefferies

Stephen Mead – Anchor Capital Advisors

Presentation

Operator

Good morning and welcome to the second 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. (Operator Instructions). At the request of the company, we will open the conference up for question and answers after the presentation.

Unidentified Company Representative

This earnings call may contain certain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E 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 of 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 our business and investment strategy; our projected financial and operating results; our ability to maintain existing financing arrangements, obtain future financing arrangements and the terms of such arrangements; general volatility of the securities markets in which we invest; the implementation, timing and impact of and changes to various government programs affecting the capital markets and the economy.

Our expected investments; changes in the value of our investments; interest rate mismatches between our investments and our borrowings used to funds such purchases; changes in interest rates and mortgage prepayment rates; effects of interest rate caps on our adjustable rate investments; rates of default or decreased recovery rates on our investments; prepayments of the 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; impact of and changes in governmental regulations; tax law, and rates; accounting guidance and similar matters; availability of investment opportunities in real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition and market trends in our industry, interest rates, the debt securities markets; or 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 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 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.

Operator

I will now turn the conference over to Mr. Matthew Lambiase, President and Chief Executive Officer. Please proceed, sir.

Matthew Lambiase

Thank you, (Rocco). Good morning and welcome to Chimera Investment Corp.’s second quarter 2011 earnings call. This is Matt Lambiase. I’m the President and CEO. And joining me on the call this morning I have Alex Denahan, our CFO; Chris Woschenko, our Head of Investments; Rose-Marie Lyght, the CIO of our manager FIDAC; Choudhary Yarlagadda, the Head of Structuring at FIDAC; and Jay Diamond, the Managing Director at FIDAC and a member of Chimera’s Board of Directors.

We’re all here to answer your questions after my comments. As you know, the mortgage market has experienced significant volatility in the recent quarter. Many bullish mortgage investors who were encouraged by the falling unemployment rate earlier in the year, had to reevaluate their positions in light of new and bleak data on home prices and home sales.

The distress is further compounded when a well-publicized sale of a large distressed mortgage-backed securities portfolio held by the Federal Reserve did not go well. Many banks with residential mortgage exposure and mortgage insurance companies also came under significant pressure during the period. So with all the volatility that we’ve experienced in the mortgage market in the last few months, I think it’s important to highlight certain aspects of Chimera’s portfolio.

First, Chimera does not own pay option ARMs, home-equity loans or second mortgage loans or securities in its portfolio. These assets saw a significant drop in price as the Federal Reserve had a difficult time liquidating the AIG Maiden Lane II portfolio during the second quarter.

The majority of the assets in the Maiden Lane II portfolio were home-equity securities and the prices of these bonds in the ABX Index which tracks them, went down materially as the market tried to absorb the supply.

Chimera is not involved in these types of securities and so the change in the level of the home-equity ABX Index is not a good proxy for the change in the value of our portfolio. To-date, we’ve been successful finding better risk reward in higher quality sectors of the mortgage credit space. And while all credit has traded off in the second quarter, the bonds in our portfolio were far less volatile than the ABX Index and home equity securities.

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