SeekingClarity

7 Comments

    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      I think REIT rules put limitations on concentration of ownership (something like no single entity can own more than 20% of the company). That would make it difficult for just one or two white knights to come to the rescue and purchase the company - at least in it's present REIT form. Mar 20 06:42 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      I agree that something is better than nothing. Certainly an equity infusion would be a godsend for all of you longs out there. But even if one were to occur I'd have no idea how the stock price would ultimately settle out and I would not even pretend to know what the real fair value should be.

      At this point there are just too many unknowns and moving parts for any outsider to say. My only point was that IF you are going to try to use a 'multiple of earnings' approach (which I don't really think has much validity in this case) you need to include these additional factors in the analysis.

      I think a better approach to this whole thing would be to try to evaluate the company based on sale value which would mostly consist of the market value of the tradable assets less outstanding liabilities plus perceived value of the organizational assets (management, info systems, contractual financing agreements, etc.). But that would still be nearly impossible to do as an outsider. The details of the remaining tradable assets aren't available and even if they were current market conditions make any estimate nothing more than a guess.

      One thing to note about many mortgage REITs including TMA is that their primary business is just buying loans and/or securities and financing them via repo or securitzation. I wouldn't go as far as to say that this type of stuff is simple but it's not rocket science either. There are a lot of people out their that know how to do it. TMA does also originate loans which is a more complex process. Historically that has been a relatively small contribution to their total asset base although it makes up a large portion of currently remaining assets since a lot of their purchased assets have been sold off since last summer. Going forward, loan origination will be exceedingly difficult for all players until there is substantial normalization in the capital markets. I think all of this means that TMA's organizational assets are not something that should demand an exceedingly high value premium.       Mar 09 06:22 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      For those trying to determine stock value via multiples of recent historical earnings, you may want to consider the following:

      1) As stated in their recent releases, Thornburg has had to sell assets in an attempt to satisfy margin calls. That means their asset base has been shrinking and may shrink even more in the near future. Fewer assets means lower earnings. That would argue for a decrease in earnings versus the most recent quarter's $0.33 result.

      2) Should Thornburg make it through this episode their borrowing costs may very well increase due to a perceived increase in their credit risk - perhaps substantially. Another hit versus the prior quarter's number.

      1) To be saved, Thornburg will likely need a substantial equity infusion to cover currently unmet margin calls. Any such infusion would result in SUBSTANTIAL dilution of the current equity holders' position - probably by a factor of 2 or 3 or perhaps even more. So even if you ignore #1 & #2 above and assume that their asset base remaines stable and the earnings on those assets continued at recent levels, the dilution would mean that those earnings are now spread out over a lot more shares so the most recent EPS would likely fall to 1/2 or even 1/3 of their recent value. So instead of $0.33 to $0.20 per share, one should assume maybe 1/2 to 1/3 of those amounts.       Mar 09 04:55 PM
    • Executive Compensation: Common Sense, Not Politics [view article]
      We have to hand it to today's excutives in corporate America. They have successfully figured out a way to legally and openly rip off shareholders while assuring that the same shareholders will likely never take any action against them even though they are aware of the scam. It comes down to simple economics. Even though the excessive pay amouts are huge, they still typically amount to pennies or less per share of stock. So economically speaking, it will never be worth most shareholders' time and effort to go through all of the steps necessary to bring and end to the practice - particularly when those efforts to be repeated for each stock in their portfolio. 'Selling the stock' isn't really an effective strategy for investors in these kind of situations. Such actions will never have a direct impact on the board. And the stock price only needs to drop by a small amount before it will make sense for another investor to buy it as it may still provide a reasonable return despite the CEO's 'theft via compensation'. CEOs and boards count on this simple fact and it is the reason executive pay has been able to grow in such a runaway fashion. The only way to effectively address this situation is to apply economies of scale to shareholder efforts. One indirect way to do this would be to use a political process to have create compensation standards that would apply to all publicly traded companies. I'm confident that standards could be created that would still allow CEOs to get rich enough to avoid a flight of talent from the market. Unfortunately, this is unlikely to ever happen as executives and the lobbyists that they can afford to hire are quite effective in developing arguments that will easily dupe the typical voter/shareholder into believing that CEO pay is somehow justified. With regard to some of these arguments, I would make the following observations:

      - Employee theft of merchandise is a constant problem for retail businesses. However, I don't often hear people make the argument that the theft should be ignored/tolerated in publicly traded companies since the shareholders can just choose to sell the stock if they don't like it. Eventhough merchandise theft is legally different from excessive CEO pay, morally and economically it is the equivalent.

      - Many argue that impact of decisions made at the highest level of a company can have such a large impact on financial results that the people making those decisions should be paid commensurately. However, use of that kind of logic would lead one to believe that doctors, pilots, cab drivers, etc. should be able to charge 400 times their usual fee when they provide service to CEOs since their actions can potentially have a major impact on the CEOs ability to make future decisions (i.e. CEO can't perform as well if sick or injured in an accident). It would also lead one to conclude that the pay for Congressment, Senators, and the President should be on the order of billions of dollars per year.

      - Generally speaking, people's pay tends to be a function of the unique skills they bring to the job and the difficulty in replacing such skills. Does anyone, including BODs and compensation consultants, REALLY believe that these people are so unique and gifted that they are worth 400 times more than the average employee? I'm certain that for evey highly-paid 'superstar' CEO their is a long line of very qualified and competent people that would be glad to take the job for significantly less money if given the opportunity. But most will never get the chance sine they aren't good friends of key board members. It's also very difficult to dispute the hiring and pay decisions of board members since the true relative performance of executives is very difficult if not impossible to determine.

      - Who came up with the ludicrous idea that CEO pay should be based on the price of the company's stock? Stock prices are driven by many factors that have NOTHING to do with CEO actions (e.g. manic markets, excessive liquidity, group think, etc.). In the field of money management it's been common practice to evaluate a manager NOT on the return of his portfolio but rather on the excess of that return over a reasonable benchmark as measured over a long period of time. The idea is to ascertain the true value-added of the manager. I don't often hear about CEO pay packages that look at stock performance RELATIVE to the market as a whole or, better yet, an index of other companies in the same industry. Rather, it seems that when the market goes up they get rich and when the market goes down they get slightly less rich.

      - The argument that CEO pay is effectively determined by free and open markets is laughable. Markets rarely work when the market participants (BODs) are all using other people's money to acquire/hire assets without any direct and easily implemented accountability to those 'other people'. Selling the stock doesn't make them accountable (see above). And it is my understanding that trends in coporate governance policy have made it increasingly difficult to unseat board members.

      - What's up with this practice of changing compensation formulas when times get bad (see recent WSJ article on new bonus plan for WAMU management)? When the market is good these guys rake in a lot of money - often for no other reason than the fact that the market was good. Maybe they should then have to forgo a lot of money for no reason other than the fact the market is bad.       Mar 09 03:23 PM
    • The Thornburg Meltdown: Resolution Trust Corp. Redux? [view article]
      Thornburg management isn't completely innocent in this debacle. The majority of the most recent margin calls were against their ~$2 billion position in Alt-A loans. These are securities that they purchased - not the high-quality loans that they originated. One has to wonder why they did not liquidate these positions during their fire sale last summer as it became clear that the market was beginning to shun anything that even sounded like it had credit risk. Mar 06 11:04 AM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      FIG Trader,

      Your points in this discussion have been very good. Having worked in the mortgage REIT field in the past, I must say I was very surprised at the lack of understanding demonstrated by many of the posts on this topic. Which leads me to a question I would pose for you or any other financial professionals participating on this site. Is this fairly typical of the material found at Seeking Alpha? I am new to the site having been led here by various references made in some of the more traditional media and 'mainstream' websites. I was under the impression that this was a primarily a forum for professionals but it seems that may not be the case. I would just like to get a feel for this now as I will likely end up reading future posts on topics where I won't have the expertise to determine the validity of the poster's assertions.

      (I apologize in advance if I am out of line getting off topic like this. As I said I'm new to this stuff and am not sure of the rules or etiquette)       Mar 05 06:33 PM
    • What Should Thornburg Mortgage Shareholders Do? [view article]
      Mr. Steedman,

      I'm curious about your statement regarding "...the straight shooter CEO, Larry Goldstone, and his observably superior team...". I often hear investors and analysts talk about 'quality management' playing a large role in their decision process but it's never clear what these management assesments are actually based on. I would be interested in some of the facts behind your opinion.

      I'm not an expert and I don't have a strong view on Thornburg's management one way or another. However, I find myself questioning their wisdom in not liquidating their Alt-A assets back in August as it became clear that investors were beginning to shun any asset that had even the appearance of potential credit problems. It also seems to be a bit cavalier to be using newly-raised 'life raft' capital to buy new assets while the structured finance markets are still in a state of turmoil.

      In cases where so much book and market value are wiped out in such a short amount of time, conventional thinking might lead one to question management's ability. That certainly seems to have occurred around many of the other financial institutions that have experienced large losses. The street is now littered with senior executives who have been forced out following big writeoffs and subsequent share price drops. But Goldstone actually got promoted following the past summer's debacle. How does that work?

      I must say I'm becoming increasingly concerned with the trend in thinking that often heaps praise (and obscene wealth) on executives as the stock price goes up but somehow sees fit to claim 'it wasn't their fault' when things go bad (see today's WSJ article on the bonus plan restructuring at WAMU). In many cases it wasn't their 'fault' when things went well either but they still got paid like it was. Maybe they should have to accept the blame and pay the price when things go bad as well.

      Mar 05 06:11 PM
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»