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Swept up in the hit to American Capital Agency (AGNC -8.3% AH) is its sister firm American...

Swept up in the hit to American Capital Agency (AGNC -8.3% AH) is its sister firm American Capital Mortgage (MTGE -5.4% AH). MTGE differs from AGNC in that it invests in non-agency MBS as well as agency paper, but both share Gary Kain as CIO. AGNC's conference call is set for Friday at 11 ET - how much did February's dilutive secondary hit the Q1 numbers?
Comments (29)
  • Stan The Man
    , contributor
    Comments (154) | Send Message
     
    If book value is the measure, the secondary was not dilutive, since it was for a price exceeding book value.

     

    This is a complicated stock and investors should not be so quick to throw in the towel. Most of the loss resulted from mark to market writedowns in the resale value of their bonds, because interest rates went up slightly when there was a whiff of growth in the economy that suggested the fed would back off. That effect has now reversed itself as later economic indicators have soured and the fed has reassured markets it will continue to buy large quantities of bonds. Those markdowns don't affect cash or interest margin, and could easily reverse in the current quarter.
    2 May 2013, 10:14 PM Reply Like
  • BTM
    , contributor
    Comments (457) | Send Message
     
    Well, I own both MTGE and AGNC and I expect both to get crushed tomorrow.

     

    I don't think anyone saw this coming and I will be surprised if there is not a violent reaction.
    2 May 2013, 10:25 PM Reply Like
  • Polishqueue
    , contributor
    Comments (9) | Send Message
     
    I agree with you that it might.
    And if it does, I will happily buy your shares.
    2 May 2013, 10:28 PM Reply Like
  • slm1a
    , contributor
    Comments (10) | Send Message
     
    Stan The Man's comments are spot on; this is primarily a book value non-cash mark down event, but it does reflect the volatility in the marketplace's and has most probably reversed to a major degree post the closing of the quarter....
    3 May 2013, 06:25 AM Reply Like
  • yawa
    , contributor
    Comments (4) | Send Message
     
    I have been through this before with this stock and was always happy that I added into the swoon, as I did tonight. I concur with Stan's conclusions.
    2 May 2013, 10:29 PM Reply Like
  • philip6ba
    , contributor
    Comment (1) | Send Message
     
    For those of us who are unsophisticated, and only look at the basic facts, this makes no sense. Revenues exceeded expectations, income exceeded expectations and the stock drops more than 8%. It's hard to imagine what would have happened if the company missed "the numbers" by $.01. The stock would probably be down 50%.
    2 May 2013, 10:37 PM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    I would disagree that revenues and income exceeded expectations. AGNC suffered losses on its sale of MBS, in the first quarter. As a result, its Net income, adjusted for unrealized gains/losses was less than the $1.25 quarterly dividend. It had $353 million in gains from that source in the 4th quarter. Why the wide swing in this area? That is a buck out of earnings. Its minimum gains from these sales in 2012 was $210 million in the 3rd quarter. There were NO LOSSES from these sales in 2012. Cash flow comes from earnings, not unrealized losses or gains from change in fair value of MBS, though that will impact BV. What is going on with the sales of MBS and will future sales result in gains or losses? It has been a critical part of AGNC's Net Income. Annaly had significant gains from the same source. What happened?
    3 May 2013, 02:14 AM Reply Like
  • netman88
    , contributor
    Comments (4) | Send Message
     
    I own both AGNC and MTGE also. Surprise that drop AH.

     

    Probably a buying opportunity IMO, both are very well run investments.
    2 May 2013, 10:41 PM Reply Like
  • melshap
    , contributor
    Comments (11) | Send Message
     
    Of 10 analysts,not one forecast the loss.
    2 May 2013, 11:10 PM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    melshap,

     

    Scott Kennedy predicted a decline in BV to about $30.60 at 3/31/2013. BV will rise when interest rates decline and will decline when rates rise. I suspect that for a while it was anticipated that the economy was on the mend, and as a result the loss in MBS value was exaggerrated based on expectations of future rises in rates. That's changed now. See "Spread Risk" page 63, in the 10-K.

     

    http://bit.ly/11GtPVo
    3 May 2013, 02:56 AM Reply Like
  • jmacjohn
    , contributor
    Comments (42) | Send Message
     
    Guess I do not understand all of this. Dividend not mentioned, unless I missed it. Guess you don't pay if you lose money/
    2 May 2013, 11:13 PM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    Divi is sustainable at least through 3rd qtr. IMO. still $1.25/quarter. They did not lose money in the first quarter (earnings). See Scott Kennedy's analysis.

     

    http://bit.ly/164CQNQ
    3 May 2013, 02:29 AM Reply Like
  • EK1949
    , contributor
    Comments (1840) | Send Message
     
    This is not a big deal. Interest rates go up, book value goes down, and in a few months AGNC may raise their dividend.

     

    "Probably a buying opportunity IMO, both are very well run investments."

     

    Yes and yes. :-)
    2 May 2013, 11:37 PM Reply Like
  • Daxxer
    , contributor
    Comments (4) | Send Message
     
    When was it hit -8% ??? I show it + .08 cents (up .24%) for the day in today's trading. ????
    3 May 2013, 01:11 AM Reply Like
  • Mathemel2
    , contributor
    Comments (7) | Send Message
     
    Check the after hours sales. It was down around $30.50 at 5:30 CST.
    3 May 2013, 01:26 AM Reply Like
  • jerry18324
    , contributor
    Comments (4) | Send Message
     
    Will be buying more shares of AGNC if it falls below $29 tomorrow.

     

    Panic selling will most likely occur.
    3 May 2013, 01:42 AM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    No reason for panic selling. The decline to $28.93 book value at 3/31 has likely climbed back a dollar anyway, putting current book value somewhere close to current market price, after hours. Interest rates have declined since 3/31, resulting in some of the book value being recovered. I don't see any reason for the needle moving much on Friday.

     

    If the loss on sale of MBS is a one quarter swoon, then all the better.
    3 May 2013, 02:44 AM Reply Like
  • kingdad
    , contributor
    Comments (1198) | Send Message
     
    Just another buying opportunity come Friday AM
    the biggest culprit is the Fed f'n with everything it can to try and make the chump in the Oval office look better than he is.
    3 May 2013, 03:14 AM Reply Like
  • richbar
    , contributor
    Comments (957) | Send Message
     
    What a bunch of ninnies! Rates drop 4Q12, MBSs rise, and the BV of AGNC soars. Then 1Q13 rates rise, MBSs fall, and the BV drops. The trend reversed again in April. It's the income that counts (spread and drop) and that's doing just fine. The stock will sell off tomorrow and will then recover after the panic sellers bail out. Buying opportunity, definitely.
    3 May 2013, 03:48 AM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    Rich,

     

    As I've already said, the sale of MBS is a material portion of AGNC's income. Without it, it doesn't have the cash to pay the $1.25 divi. 1st qtr taxable income was only $.50/share. So, is this a one quarter "thing" or will the rise in rates over time cause more losses from sales of MBS? The divi is safe through 3rd qtr., IMO. But future quarters better result in more income if the current divi is to be maintained beyond that. Income in 1st qtr was not fine by any measure. Very disappointing. Hopefully, AGNC can provide some guidance as to the future on Friday's conference call.

     

    Back up your statements with factual information, rather than just your opinion, and inappropriate name calling.
    3 May 2013, 03:57 AM Reply Like
  • Andrew1397
    , contributor
    Comments (5) | Send Message
     
    I agree Bryce, the change in BV is very scary. The fact that mgmt didn't hedge this giant exposure is equally troubling. If BV changes by so much when interest rates only rise a little (10 yr T-bill from 1.7% to 2.0%, roughly for Q1) what happens when interest rates rise a lot, like in 2015/2016??? AGNC will experience significant losses as the securities that they bought when prices were high (interest rates low) are now sold when prices have fallen (interest rates higher). And given that this company is highly levered, over 6x, even relatively small value changes of the underlying instruments will greatly impact per share results. I'm long AGNC (15k shares) but not for much longer. These bozos running the company don't even understand simple hedging.
    3 May 2013, 09:24 AM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    Andrew,

     

    I'd recommend you read Scott Kennedy's analyses of AGNC. The MBS sales losses may be an abberration, something out of the normal. I'm just asking questions. I think it is well run. But, I am a newbie to mREITs. But, I know how to read a financial statement and understand how the unrealized gains/losses distort GAAP Net Income.

     

    Scott thinks yesterday was an overreaction, and he's probably right. There may be a good reason for the MBS sales losses. I'm not long AGNC or NLY, but thinking about getting in at a good price. Still, I do wonder what will happen when rates start to rise. Good info in the link below.

     

    http://bit.ly/164CQNQ

     

    It's bounced back a little this morning.
    3 May 2013, 09:59 AM Reply Like
  • Andrew1397
    , contributor
    Comments (5) | Send Message
     
    Yes, I did read that article, it was very imformative. However, it only talks to the sustainability of the dividend. I'm looking at my whole investment in AGNC, both capital appreciation (or depreciation) as well as income. It doesn't help if my income is up 15% but my capital falls greater than 15%. Even if capital falls only 10% and I'm still at a 5% gain, the risk I'm taking - especially with a mgmt team that guessed wrong - isn't worht the reward. I can get 3-4% dividends with some very safe names (JNJ, PG) and not have to worry about a massive exposure that's not hedged. I got into AGNC because of reading mgmt's statement about protecting BV through hedges. I'm going to get out due to the fact that they can't execute well. I was lucky and got in very early in Jan so I'm about breakeven right now. I'm going to listen to the earnings call and maybe try to ride it out through Q2. Regardless, there's a lot more risk associated with AGNC then what the company states. If they had put in place an effective hedging strategy this wouldn't have been so dire. Thanks for the link.
    3 May 2013, 10:44 AM Reply Like
  • User 4542301
    , contributor
    Comments (3855) | Send Message
     
    Yes, there is considerable risk with any mREIT, agreed. I sold out of NLY when it dropped a lot. Made a little but not a lot. Over the long term, though, 5 years or more, a person might make a good return, but with a lot of volatility.

     

    An equity REIT I'm in is Realty Income, "O". Up about 35% plus dividends. Have only been in it for about 6 months though. The dividends have steadily increased over 15 plus years.
    3 May 2013, 11:24 AM Reply Like
  • Aikman
    , contributor
    Comments (157) | Send Message
     
    Would this impact WMC?
    3 May 2013, 05:59 AM Reply Like
  • Likes2invest
    , contributor
    Comments (7) | Send Message
     
    Alkman - almost impossible to tell what WMC results will be like but we are likely going to see a lot of "nervous panic" on Friday morning across the total suite of m-REITS. Most m-REITS are down after hours.
    I also hold WMC and it is down 3.3% AH.
    3 May 2013, 07:30 AM Reply Like
  • bill mac
    , contributor
    Comments (5) | Send Message
     
    Compicated,indeed!And compication brings on uncertainty.Franky,I'd rather be in Disney.Seriously,this is a buying opportunity not a selling one.Agnc is a solididly run REIT ,and I see no accounting issues or nefarious behavior by management mentioned.Wait for conference call. listen to it yourself and if you hear what I expect to hear(all is well) buy at the discount.(29?)
    3 May 2013, 09:15 AM Reply Like
  • Polishqueue
    , contributor
    Comments (9) | Send Message
     
    Well, it looks like my $25 June covered call sales are less likely to be excersized, which is fine by me ($25/share is my 20% gain target). OTOH, if it were to drop back below twenty bucks I'd be buyin' me up as much of it as I could. Is there anyone out there who thinks MTGE will ever sell for $19.90 again? Yeah, me neither.
    3 May 2013, 11:41 AM Reply Like
  • jerry18324
    , contributor
    Comments (4) | Send Message
     
    Today wasn't nearly as bad as I thought it would be. Didn't even drop below 30 for the day. Interesting to see if AGNC will still trade at a premium to book value in the days to come.
    4 May 2013, 01:56 AM Reply Like
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