Chimera Investments (CIM) has dodged the stock exchange delisting bullet - at least for a few more months. The troubled mortgage REIT has yet to file the required year-end financial reports from 2011 and now the NYSE has given the company to at least January 15, 2013 to make some headway on the reports.
I first discussed the potential for Chimera to be delisted back in early June, in a discussion of how much the dividend would be reduced for the second quarter. The dividend was slashed by 18% for the quarter. Since then, I have focused on the lack of information coming out of Chimera management and the risk to investors from that lack of information.
Chimera finally responded to investor concerns last month, announcing that the company needed to restate earnings all the way back to 2008. At that time the company announced that dividends for the third and fourth quarter would be paid at a rate of 9 cents per share - the same level as the second quarter distribution. The press release made it clear that the dividends might not be coming from actual earnings. No time frame was provided when any 10-K or 10-Q reports would actually be released and today's news appears to push those events into the first couple of weeks of 2013.
Stock Price Recovery
It seems that my article discussing the potential for the eventual elimination of the Chimera dividend helped push the CIM share price down below $2 for a short period on July 26. Since then the share price has moved steadily upward to a current level of $2.80. The 40% gain off the low has come in spite of zero news out of the company. In my opinion, the share price gain over the last 6 weeks is a testament to the power of attraction a 14% yield has on uninformed investment money. I do think it is important to point out that CIM was a $4 stock just 1 1/2 years ago and a $19 stock at one point in early 2008.
New Beginning or Beginning of the End
I believe the listing extension from the NYSE puts a hard date on when Chimera must come out with the required financial reports. It is possible that another extension could be granted, but if that happened, it is very possible that the last of the remaining believers would bail out on the stock. The company has stated that the 4 years of earnings restatements are not expected to materially affect "previously reported GAAP or economic book values, actual cash flows, dividends and taxable income". Even if that is the case, Chimera Investments was a company whose business was not working out, witnessed by the steady erosion in profits and dividends, which peaked in the third quarter of 2010. I would not be surprised if Chimera Investments is a pink sheet stock by the end of the 2013 first quarter.