American Capital results disappoint

Adding in "other comprehensive income" such as net unrealized gains on marked-to-market investments yields $0.45 comprehensive income per share. Q2 dividend was $0.80 per share. Estimated undistributed taxable income falls to $0.57 per share from $1.07.

Book value per share of $25.27 off 0.9% from $25.51 at the end of Q2, and vs. this afternoon's close of $23.89, putting the shares at a 5.5% discount.

Net interest spread of 1.20% is down 29 basis points from Q2. Including estimated TBA dollar roll income/loss, net interest spread of 1.14% is off 72 bps from Q2.

$77.8B portfolio at end of quarter with 7.2x "at risk" leverage, down from 8.5x at end of Q2.

CIO Kain: "We continued to migrate the portfolio into shorter maturity securities, lowered leverage somewhat, and maintained relatively high hedge ratios ... We have gradually been increasing our duration gap and begun to transition in the direction of a more normal balance between risk and return."

11.9M shares repurchased during Q at average price of $22.16 each - an approximate 13% discount to net book value.

Earnings call tomorrow at 11 ET.

AGNC -4.8% AH.

Comments (17)
  • BTM
    , contributor
    Comments (469) | Send Message
    They're loosing their midas touch.
    28 Oct 2013, 04:30 PM Reply Like
  • RamsesF15C
    , contributor
    Comments (7) | Send Message
    BV is stated at $25.27, actually almost 1% lower than BV of 25.51 at end of Q2.
    28 Oct 2013, 04:31 PM Reply Like
  • Clark
    , contributor
    Comments (34) | Send Message
    They are doing everything they should knowing that interest rates will rise. The correct response is to get into shorter term bonds until long term bond rates stop increasing. They will make less money. No way around that. They are still a good company for someone holding for years to come. Thanks FED for another screwed up market.
    28 Oct 2013, 04:45 PM Reply Like
  • presidentasp
    , contributor
    Comments (65) | Send Message
    I'm really very happy at such a low BV loss. And as usual the devil will be in the details of the report. May turn out to be good for a well educated investor. Then again, it may turn out to be bad. Can't wait to see what Scott Kennedy has to say about it.
    28 Oct 2013, 05:25 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (2794) | Send Message
    Hmmh, I obviously read the report differently than most. My take away was relatively benign.


    Flat book value (1% change)
    Added economic value (dividend + change in book)
    Slight increase in spread
    Continued reduced risk
    28 Oct 2013, 05:33 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (4177) | Send Message
    Darren, look at net spread income Q vs Q.
    Q2= $1.15
    Q3= 0.58c


    It got obliterated.
    That is not good news at all.


    The problem is they are trying to chase where they think rates will go.
    So they over-hedged and are trying to reposition their portfolio.


    Then you get a monkey wrench thrown into the situation like the government shut down and the debt ceiling.
    The debt ceiling will come back around in Jan/Feb.
    So rates may not go up for a while now.


    They (mreits) are just in a bind trying to chase the rate direction and it's not going their way so far in 2013.


    28 Oct 2013, 05:39 PM Reply Like
  • BTM
    , contributor
    Comments (469) | Send Message
    Won't be long till another divy cut.
    28 Oct 2013, 05:49 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (4177) | Send Message
    That is what I'm thinking to unless they can score another big one time gain on MBS sale (if MBS rallies this quarter).
    28 Oct 2013, 05:57 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2851) | Send Message
    Judging from the language in the presentation, I have a feeling that the call tomorrow is going to basically be them saying that the next 18 months are going to bumpy, but that the business 2 years from now to 5 years from now should be very favorable.
    28 Oct 2013, 06:08 PM Reply Like
  • Phattboy43
    , contributor
    Comments (143) | Send Message


    Thanks. I've been mentioning what you've said several times regarding the entire industry. NO ONE knows exactly what rates will do. Not even the almighty Gary Kain. So, no matter how talented the management, they either hit it or they don't. The volatility in the last six months proves these companies' fortunes are not entirely in their hands. Rather, unpredictable interest rate fluctuations. Problem is, when you are 7x+ leveraged, you better get it right. The last 4 years have been a perfect environment for these instruments. This environment no longer exists or has certainly deteriorated.
    28 Oct 2013, 06:21 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (4177) | Send Message
    Ye it's pretty crazy when you just look at what happened in October with the Government shut down and the debt ceiling stand off which most analysts think will cause tapering to get pushed back.


    I doubt any mreits had that happening on their future modeling.


    There are just wonky unpredictable things that can happen.
    28 Oct 2013, 06:26 PM Reply Like
  • Regarded Solutions
    , contributor
    Comments (20339) | Send Message
    Nah they will be upbeat of course!
    28 Oct 2013, 06:35 PM Reply Like
  • Marek
    , contributor
    Comments (1516) | Send Message
    Bumpy? Compared to what? Back in Q2, Mr. Kain's take, very plausible and even possibly brilliant, was that markets immediately, and prematurely, reacted to taper talk by normalizing the price as if discounting to the very end of the average mortgage terms...magnified by leverage of of course in the immediate term was really a gross over-reaction that would cycle back in time as we revert to the long term mean out to the end years. Be calm, all is still well. Shaking out of weak, speculative hands, not a fundamental shift, just a complete reaction all the way to the longer out-years. We would re-price back to the more rational part of the time curve.


    Sounded savvy then, I stuck around for a while through my loss, for a few weeks...but no moderation through July...I sold and had good lumps for it, having come in not long before. Now it sounds like it was like that Kevin Bacon character in Animal House, when the riot started and he is in there calming the screaming crowd with "Please keep calm, all is well!..." while every so often the camera cut back on him to see him progressively more and more trampled by the unheeding crowd...(er, Mr. Market). Even if Mr. Market is wrong, he's driving.


    Now we are a couple more moves from then. We will no doubt hear a very skillful "all is well" message again.


    I took a call from a desperate mortgage loan officer this morning following up on a secondhand tip he was passed by some realtor I harmlessly asked a question about a new list for a tiny (priced) but premium location condo selling at a real discount rate (for around here that is, and this is a pretty healthy market, everything here is insurance, banking, grains and big ag, almost the lowest unemployment in the nation). Talk about a super fast response on a small-fry first-day-of-list sniff. And this after I'd told his realtor-source I was a cash buyer and wasn't interested because the HOA bylaws forbid my cats (no pets, also even about strict).


    Meanwhile across town WFC dropped a large percentage of its national home mortgage operation ("laid off" several hundred people, all in the home mortgage arena), even though the drop in business suggests rates won't be moving very far up for a while.


    Well, things may stabilize as rates do, for a year or two, but why bother unless you are getting in new? And the rescue reasons I am reading above seem a little stretchy, like a one-off reversal hedge or other SPECULATIVE mechanism. Meanwhile, a new buyer only could look at the stock on tomorrow's initial reaction dive. Anyone else already invested, your minimum term should be a bunch of years at this point and don't plan on needing any of it. Talk about volatile.


    I took my unhappy loss back in Q2 as tuition, and have only looked back for education. If you don't see writing on the wall by now, you are way better than me, not that it would be difficult. And I have to say that Regarded Solutions has had the edge before and now.
    28 Oct 2013, 11:36 PM Reply Like
  • Regarded Solutions
    , contributor
    Comments (20339) | Send Message
    Basically, everything I warned is coming to pass....NLY will be just as awful.
    28 Oct 2013, 06:34 PM Reply Like
  • mrmedusa
    , contributor
    Comments (529) | Send Message
    All I have left now is WMC, and I'm sticking with them until they show me otherwise. I'll take that $.90 dividend and buy some more $CSD, $PKW, and maybe some more $BDCL. I bought into this knowing it wouldn't last, but you make hay when the sun shines, and it still beats a money market or a 2.5% yield blue chip for the time being. My source of "new" money in my IRA.
    28 Oct 2013, 10:56 PM Reply Like
  • BPolus
    , contributor
    Comments (39) | Send Message
    Jack hit the road and won't come back.
    28 Oct 2013, 08:16 PM Reply Like
  • dhdhoora
    , contributor
    Comments (687) | Send Message
    We should reserve judgement and wait for Scott Kennedy to weigh in. He's way ahead of the rest of us in analyzing AGNC.


    All the very best,
    28 Oct 2013, 09:06 PM Reply Like
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