Annaly Capital Management Inc., the largest single-family mortgage REIT, generated a GAAP gain over the previous and year-ago quarters, and relatively stable earnings outside of unrealized gains or losses on financial instruments.
The company’s net income under generally accepted accounting principles for the quarter ending March 31 was almost $902 million or $0.92 per average common share. This was up from almost $700 million, or $0.92 per common share, in the first quarter of 2011, and $445.6 million in net income, or $0.46 per share, in the quarter ending Dec. 31, 2011.
Without the unrealized gains and losses it takes on interest-rate swaps or agency mortgage-backed securities, net income for the quarter ending March 31 was $529.3 million, or $0.54 per share, compared to $530.6 million, or $0.70 per share, for the first quarter of last year and $525.3 million, or $0.54 per common share, for the fourth quarter of 2011.
The company’s stock experienced slight gains after its earnings release.
When asked about mortgage-backed securities market opportunities that affect its returns, notably prepayments, Annaly’s chairman and CEO Michael A.J. Farrell said during the company’s earnings call that he considers policy outside of the actions central bankers take is “the real risk.”
Farrell, who recently disclosed he is in recovery from a treatable cancer, said, “In my mind if you’re a central banker you want to defend your legacy, and your legacy is going to be that, ‘We’ve done a lot here, as much as we can do from interest rates. We’ve moved them down a lot and we’re still not seeing the results. If you guys want to do something about housing it’s got to come out of policy’ and I think that’s the real risk in prepayments.”
He also believes that a notable macro risk is that “all of the intervention that’s going on globally…is skewing asset allocation decisions across all of the markets.”
In response to what tends to be recurring earnings questions for Annaly about what some consider its relatively low leverage levels, Wellington Denahan-Norris, Annaly’s vice chairman, chief investment officer and chief operating officer, said during the call that while the company “gets a lot of heat about this” it does protect against market risks such as it was asked about during the call related to interest rate risk.
In response to an observation during the call that the company’s leverage has increased modestly recently, Denahan-Norris noted that “leverage is a snapshot in time” and should viewed accordingly.
