Mortgage REIT Chimera Climbs After Details on Restatement

Chimera Investment Corp. (CIM) rose the most in almost nine months as the mortgage investor gave details of a restatement of its results since 2008, saying it plans to maintain a reduced dividend in the second half this year.

The real estate investment trust run by Annaly Capital Management Inc. (NLY) gained 8.3 percent to $2.36 in New York trading, the most since Nov. 15. It earlier soared as much as 14 percent, the largest intraday gain since March 2009. The stock has lost 8 percent in the past year, assuming reinvested dividends.

The REIT, which invests in U.S. home-loan securities without government backing, has failed to report results since the third quarter of last year, citing errors in its accounting for earnings from bonds purchased at discounts. The New York- based company said in a statement today that revisions to its net income under generally accepted accounting principles will lower the figure by $695 million during the affected years, with interest income falling by $411 million.

“While we are unable to revise our earnings model with this limited data, we believe our concerns about the ongoing nature of the enterprise have been addressed,” Merrill Ross, an analyst at Wunderlich Securities Inc. in Baltimore, wrote today in a report, upgrading the company to a “hold” from a “sell” rating.

Annaly, which manages Chimera, is the largest REIT (BBREMTG) that invests in mortgage debt, with about $130 billion of assets and a concentration on government-backed bonds. The assets of Chimera, which went public in 2007 and reached a high of $19.59 in January 2008, total about $10 billion, according to data compiled by Bloomberg.

Separately, American Capital Agency Corp. (AGNC), the second- largest mortgage REIT, fell the most since October before retracing most of the losses.

Dividend Payments

Chimera’s restatement, whose timing the firm said it couldn’t estimate, won’t change “the company’s previously reported GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period,” it said.

Chimera said in a separate statement that it plans to pay a dividend of 9 cents in the third and fourth quarters, after lowering the payout last quarter from 11 cents. The REITs’ dividends are exceeding its cash earnings, requiring it to borrow or shrink its holdings for the payouts, and “neither alternative supports value creation, in our opinion,” Ross said.

American Capital Agency, which invests in government-backed mortgage bonds, fell as much as 11 percent, before closing down 3.3 percent at $32.96. The Bethesda, Maryland-based firm has returned 38.9 percent over the past year, including dividends.

Prepayments Jump

The REIT slumped as data released yesterday showed a jump in prepayments on low-coupon 30-year mortgage securities that represent its largest holdings without refinancing protection, and as those bonds declined today with Treasuries amid better- than-estimated corporate earnings.

“It’s not that big of a position and those securities are expected to speed up over time in a low-rate environment,” Gary Kain, the firm’s president, said today in a telephone interview. The REIT is about 70 percent invested in debt with refinancing protection that is “performing great” and it’s hedging more than ever in the past against falling bond prices, he said.

About 6.5 million of the company’s shares changed hands in the first three minutes after the open of exchanges at 9:30 a.m., more than the stock has traded on average in a full day this year, according to Bloomberg data. Rapid declines at the open have sometimes been caused by a block of orders that triggered a series of stop losses, according to Michael Widner, an analyst at Stifel Nicolaus & Co. Stop losses are orders to sell when a stock’s value falls to a specified price.

Shares of New York-based Annaly fell about 1 percent to $16.64. The stock has returned 8.8 percent over the past year.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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