Seeking Alpha

American Capital Agency Corp. (AGNC)

  • Feb. 4, 2014, 11:51 AM
    • Addressing an analyst cadre somewhat uncomfortable with American Capital's (AGNC +1.6%) new policy of purchasing the common stock of its agency mREIT competitors (Wells' Joel Houck: Do you know their hedging strategies? What happens when one blows up?), CIO Gary Kain says the discounts to asset value are so great as to mitigate much of the risk.
    • Kain does acknowledge some risks though, and reminds that the purchase program is but a small slice of AGNC's overall portfolio ($400M of others' stock bought so far vs. nearly $600M of AGNC buybacks just in Q4).
    • For now, there won't be any disclosure of which names American Capital is buying - a position also not sitting well with those on the call. Should the positions get large enough though, regulatory filings might be required.
    • Kain also reminds that AGNC isn't just boosting risk with these purchases - instead it's selling MBS at 100 cents on the dollar to buy them back (via other mREITs) at somewhere in the area of 80 cents on the dollar.
    • Most of the mREIT sector (REM +0.7%) is ahead again today - Armour (ARR +0.9%), CYS (CYS +2.8%), Hatteras (HTS +1.6%), American Capital Mortgage (MTGE +0.6%), PennyMac (PMT +1.2%) - but Annaly (NLY -0.6%) lags, perhaps as investors feel it was far more conservatively positioned going into 2014 than AGNC was.
    • Earnings call is still ongoing
    • Previous coverage
  • Feb. 4, 2014, 11:18 AM
    • "There are numerous reasons to believe a repeat of 2013 is not in the cards," says American Capital Agency (AGNC +2.2%) CIO Gary Kain on the earnings call. He notes most traditional agency MBS investors are underweight the sector, and MBS have already priced in continued rises in interest rates.
    • Not only is American Capital aggressively repurchasing its own stock while it trades at a large discount to book value, but it bought $400M worth of other agency mREIT players ($237M in Q4, increased to $400M as of the end of January). Kain: Why buy more mortgages when you can buy the companies that own them for roughly 20% less than the value of the mortgages on their books.
    • Earnings call slides
    • Previous earnings coverage
    • Related ETFs: REM, MORT, MORL
  • Feb. 4, 2014, 9:46 AM
    • After spending most of last night's after-hours sessions and this morning's premarket in the red, American Capital Agency (AGNC +1.1%) moves higher in early regular session action.
    • Yes, the headline drop in book value doesn't look good, but the decline suggests CIO Kain positioned the portfolio aggressively, meaning a big benefit thus far in 2014. It's possible Q4's drop in book has been reversed and more in the opening weeks of Q1. Net interest margins also widened a bit during Q4.
    • Look for more color on the earnings call at 11 ET.
    | Comment!
  • Feb. 3, 2014, 4:13 PM
    • Net spread and dollar roll income of $0.75 per share. Net interest spread of 1.39% is up 2 basis points from Q3. Estimated taxable income of $0.65 per share equals the dividend.
    • Book value per share of $23.93 is off $1.34 or 5% from the end of Q3.
    • 28.2M shares or 7% of the float repurchased during Q at average price of $20.82 each. Share repurchase program is boosted by $1B to $2B.
    • Portfolio size of $68.2B with leverage at 7.5x. CPR of 8% during the quarter.
    • CIO Kain sounds like he caught the nice move lower in rates this year: "Market conditions (at year's end) were decidedly more stable and many of the idiosyncratic risks that we faced earlier in the year had abated ... As such, we were considerably more comfortable positioning the portfolio with a larger duration gap as we moved forward toward a more normal balance between risk and return. Given the decline in interest rates and the strong performance of agency MBS in January, we have already seen a meaningful increase in our book value."
    • CC tomorrow at 11 ET
    • Press release
    • AGNC was initially down about 3% AH, but the last trade shows the shares flat at $21.06, a 12% discount to Dec. 31 book.
  • Feb. 3, 2014, 4:04 PM
    | Comment!
  • Feb. 3, 2014, 10:42 AM
    • The poor ISM number and resultant drop in interest rates provides more manna to the rebounding mREITs (REM), with Annaly (NLY +1.7%), Western Asset (WMC +1.9%), CYS (CYS +0.9%), Capstead (CMO +1%), and Ellington (EFC +0.8%), (EARN +0.2%) among those leading the sector this morning.
    • Capstead was the first of the mREITs to report Q4 results, but American Capital (AGNC +0.9%), (MTGE -0.1%) reports on Wednesday, and investors will want to see if Gary Kain and team - so worried about higher rates - hedged away any gains to be made from their fast decline thus far this year.
    • Related ETFs: MORT, MORL
  • Feb. 3, 2014, 12:10 AM
  • Feb. 2, 2014, 5:35 PM
  • Jan. 31, 2014, 10:26 AM
    • Working today - and for the whole month of January - as the broader market sells off are the REITs. The sector - both the equity REITs and mREITs - had been punished in 2013 as rates moved higher starting last May, but another four basis point decline this morning brings the 10-year Treasury yield down to 2.66% after starting the year at about 3%.
    • At least for the mREITs, nearly all put in what may turn out to be major bottoms late in 2013 amid jitters over year-end tax-loss selling and the commencement of the taper - sell the rumor, buy the news ... indeed.
    • Mortgage REITs: Annaly (NLY +1.1%+7.4% YTD, American Capital (AGNC +1.3%+9.1%, Invesco (IVR +0.5%+6.7%, Anworth (ANH +0.6%+10.9%, Apollo Residential (AMTG +0.7%+9.1%, AG Mortgage Investment (MITT +0.6%+5.6%.
    • Equity players: Realty Income (O +0.5%+9.6% YTD, National Retail (NNN +0.7%+9.8%, AvalonBay (AVB +0.8%+4.1%, Public Storage (PSA +0.6%+4.9%, Boston Properties (BXP +0.2%+7.8%, Liberty Trust (LRY +1%+7.9%.
  • Jan. 30, 2014, 10:20 AM
    • You're seeing a lot of demand in the assets we hold, says Capstead Mortgage (CMO +1.5%) management on the conference call after reporting a blowout Q4. In a steepening yield curve environment - the short-end anchored while long rates move higher - Capstead is benefitting from tightening spreads in the 5/1 ARMs it mostly holds.
    • Mr. Market seems to have fleshed this out, and Capstead was already trading for right around book value (reported at $12.47 as of Dec. 31) vs. the double-digit discounts for long-end players like Annaly (NLY +0.2%), American Capital (AGNC -0.3%), Armour (ARR), and CYS Investments (CYS -0.5%).
    • Another in the adjustable-rate arena is Hatteras Financial (HTS +1.5%).
    • Related ETFs: REM, MORT, MORL
  • Jan. 29, 2014, 3:15 PM
    • For the most part, the mREIT sector (REM -0.2%) is getting little boost from another big swoosh down in interest rates - the 10-year Treasury yield off 7 basis points to 2.69%. Confused about how to play the dislocations caused by massive QE purchases of MBS, mREIT managements are likely similarly confused about how to play the taper (another $10B reduction today).
    • Peeking into the green in afternoon action are Annaly (NLY +0.9%), Chimera (CIM +0.8%), and American Capital Agency (AGNC +0.2%), but Armour (ARR -0.7%), Invesco (IVR -1.2%), American Capital Mortgage (MTGE -1.2%), Hatteras (HTS -1.7%), and Western Asset (WMC -2.6%) are nicely lower.
    • Capstead Mortgage is set to be the first of the mREIT to report Q4 results after the bell today.
    • ETFs: MORT, MORL
  • Jan. 23, 2014, 2:23 PM
    • One sector nearly fully in the green on a big down day for the broad averages is the mortgage REITs (REM +0.6%) as investors - worried about further declines in book value - take comfort from a big 10 basis point dip in the 10-year Treasury yield to 2.76% (off from 3% at the start of the year).
    • Leading are CYS Investments (CYS +3.1%), Annaly (NLY +1.7%), American Capital (AGNC +1.4%), (MTGE +1.5%), Invesco (IVR +1.8%), Anworth (ANH +1.3%), and AG Mortgage Investment (MITT +0.7%). The sector elephants - Annaly and American Capital Agency - are head 6% and 8% YTD, respectively.
    • With the big drop in yields at the long end, how long will it be before investors stop fretting about declines in book value and shift to concern over narrowing spreads!
    • Related ETFs: MORT, MORL
  • Jan. 16, 2014, 10:00 AM
    • It's mission accomplished at Javelin Mortgage (JMI) for Phil Goldstein's Bulldog Investors, but there are other "vulnerable companies," says JMP's Steve Delaney. “Management doesn’t have a lot to stand on if the REIT’s stock is trading at 80 percent of its book value."
    • Javelin has returned 33% since Bulldog disclosed a stake (and called for fast buybacks) late last summer even as the rest of the sector - including giants Annaly (NLY) and American Capital Agency (AGNC) - continued to decline. Goldstein has deferred to comment on his next target but has said he's eyeing both equity and mortgage REITs.
    • Anworth Mortgage (ANH) - trading in the area of a 30% discount to book - is a "clear target" for an investor like Goldstein, says Delaney. The company repurchased 2.8M shares in Q4 and boosted its authorization to another 5M.
    • Annaly and American Capital are likely too big to be targets, says Delaney, as is a smaller shop with a big backer like Leon Black's Apollo Residential Mortgage (AMTG).
    • Related ETFs: REM, MORT, MORL
  • Jan. 13, 2014, 3:08 PM
    • What might pull the mREIT sector out of its brutal slump? A slide in the broad equity market for one. An out of nowhere 1%-plus dive in the major averages is being felt in the bond market, where the 10-year yield is off another 3 basis points to 2.83%, and mortgage REITs (REM +0.4%) - whose book values have been savaged by the big jump in interest rates since last spring - are responding.
    • Annaly (NLY +1.2%), American Capital (AGNC +1.4%), (MTGE +1.1%), Two Harbors (TWO +1.4%), CYS (CYS +1.9%), Western Asset (WMC +1.5%), AG Mortgage (MITT +1.1%), and Ellington Residential (EARN +0.8%) are leading. This just in: Sector giants American Capital Agency and Annaly are ahead 6% and 4% YTD, respectively.
    • The iShares 20+ Year Treasury Bond ETF (TLT +0.6%) is up 3.2% for the year.
  • Jan. 10, 2014, 11:18 AM
    • It's a big dip in interest rates today (the 10-year yield off 8 bps to 2.88%), but buyers are doing little more than tiptoeing back into beaten-down mortgage REITs.
    • Leading are Annaly (NLY +1.3%) and American Capital (AGNC +1.4%), (MTGE +1.1%), and Armour (ARR +0.7%), CYS Investments (CYS +1.2%), and Invesco (IVR +1.1%) are also posting decent gains. All are quietly up in the area of 5-10% off of their 52-week lows set late last year.
    • Related ETFs: REM, MORT, MORL
  • Dec. 20, 2013, 12:12 PM
    • "Do the math," says SA contributor REIT Analyst, eyeing a short opportunity in Western Asset Management (WMC +5.4%) following its surprising $2.35 dividend announcement last night.
    • The rise in the stock today puts it above November 30 estimated book value per share of $16.76 - this at a time when the rest of the mREIT sector (REM+1.2%) is trading at a significant discount to book, including American Capital Agency (AGNC +1.3%) at more than a 20% discount, and Anworth (ANH+1%) at nearly 30% - just to name two. And don't forget the dilutive share issuance necessary to pay out the stock portion of the dividend.
    • Among others who announced dividends last night, Annaly (NLY +2.1%) gains after surprising no one by cutting a nickel to $0.30, and Chimera (CIM+2.2%) rises after announcing a special $0.20 dividend.
    • Lumped in with the mREITs, but with a slightly different business model is Arlington Asset Management (AI +3.3%) which continues a big run this year after holding its payout steady. SA contributor Darren McCammon reminds Arlington is a C corp, so - for taxable accounts - its yield is taxed at lower qualified rates, making its 13.4% annualized payout comparable to an mREIT paying 16%. Check McCammon's post for the rest of the advantages. The stock is up 28% YTD vs. big declines for the mREIT sector.
    • Related ETFs: MORT, MORL
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Company Description
American Capital Agency Corp is a real estate investment trust that invests exclusively in residential mortgage pass-through securities and collateralized mortgage obligations on a leveraged basis.
Sector: Financial
Country: United States