Annaly Capital Management, the nation's largest mortgage investing REIT, posted a $922 million net loss in the third quarter, citing a flattening yield curve and faster prepayment speeds.
But the publicly traded investor in agency MBS noted that "without the effect of the unrealized gains or losses on interest rate swaps and interest-only mortgage-backed securities" it actually earned $623 million.
In other words, for Annaly it's all about hedging and accounting rules. The previous three quarters it earned trailing, respectively: $120 million, $699 million, and $1.2 billion.
In 3Q of last year it lost $14 million.
"We continue to take a conservative approach to portfolio management," said Wellington Denahan-Norris, Annaly's chief investment officer. "Even as the general operating dynamics for our company continue to be favorable, at the margin policy decisions are affecting market conditions as the yield curve flattens and prepayment speeds increase. We maintain the ability to take advantage of investment opportunities as they arise while preserving balance sheet strength. After taking into account the effect of interest rate swaps, our portfolio of mortgage-backed securities and agency debentures was comprised of 41% floating-rate, 9% adjustable-rate and 50% fixed-rate assets."
The New York-based firm posted interest income of $930 million in 3Q compared to $702 million a year ago.
It ended September with $113 billion of assets compared to $82 billion a year ago.
