Chimera Lives to Fight Another Day

Fears that Chimera Investment  (NYSE: CIM  ) would be delisted by the New York Stock Exchange today have been allayed. At least for another month, anyway.

For those of you that have been following this saga over the last year, you know that Chimera has failed to file its requisite financial statement with the SEC for over a year and counting. It's taken a hiatus to correct accounting irregularities that have overstated its net income by an estimated 66% since 2008.

Beyond the fact that this leaves Chimera's investors in the dark, it's also drawn the ire of the NYSE, which requires that listed companies stay current on their regulatory filings. In September, the exchange gave Chimera until today to file its 2011 annual report, leaving many, myself included, to wonder whether today would be the beginning of the end for the high-yielding mortgage REIT.

In a press release issued after the market closed yesterday, Chimera announced that it's been granted a an additional 30-day reprieve. According to the statement: "The extension granted by the NYSE, which is subject to review by the NYSE on an ongoing basis, provides the Company until February 15, 2013 to file its 2011 Annual Report on Form 10-K with the Securities and Exchange Commission. During the extension period, trading of the Company's shares on the NYSE will remain unaffected."

Even though shares in the company are rallying on the news today, this doesn't change the equation. On the bear side, which I ascribe to, Chimera and its de facto parent company Annaly Capital Management (NYSE: NLY  ) exhibit a number of glaring issues that should discourage all but the most risk-loving of investors from speculating in the eventual outcome of these events.

Among other things, as I covered here, many of Chimera's top executives are related to Annaly's executives or directors, Annaly's board has a track record of ignoring shareholder votes, and there's even reason to believe that Chimera has started taking steps to liquidate its portfolio.

On the bull side, however, mortgage-backed securities have rallied over the last year as the Federal Reserve continues to pour $40 billion into the market every month courtesy of QE3. In addition to bolstering MBS-focused hedge funds, this has potentially put mortgage REITs in a position to capitalize on the trend in the short run -- though, as I discussed last year, the pressure on yields will make itself felt in the long run.

Either way, it looks like investors have at least another month to wait before learning about the true condition of Chimera's financial position. In the meantime, I strongly encourage you to check out our new in-depth report on Chimera that I recently put together. It discusses both the strengths and weaknesses of the company and concludes with an overarching perspective on its stock. To access this pivotal report instantly, simply click here now.


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  • Report this Comment On January 16, 2013, at 8:15 AM, DavidAkre wrote:

    John - When you say Chimera has "overstated its net income by an estimated 66% since 2008" how does that square with this statement from the company issued on Jan 14, 2013 - "The restatement is not expected to affect the Company’s previously reported GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period."? I'd love to see your math. I'd love to see FINRA look at your math. How many puts do you own anyway. #Bogus!!

  • Report this Comment On January 16, 2013, at 9:06 AM, JohnMaxfield37 wrote:

    DavidAkre -

    It's not my math. The 66% figure is CIM's own estimate:

    "Net income for the Restatement Period is expected to decrease by approximately $695 million (66%) from approximately $1.06 billion to $367 million."

    http://www.sec.gov/Archives/edgar/data/1409493/0001157523120...

    Also, I don't have a position in CIM.

    - John

  • Report this Comment On January 16, 2013, at 9:36 AM, DavidAkre wrote:

    So actual cash flows, taxable income and GAAP book value won't change, but GAAP income gets marked down. Do investors care about GAAP income or taxable income? REITs pay dividends based on taxable earnings, not GAAP, so I have to side with taxable earnings. On a macro basis this shows the credit sensitive nature of Chimera's assets, and similar positions returns approx 20% in 2012. They could have a nice pop in book value as a result of the credit tightening in 2012.

  • Report this Comment On January 18, 2013, at 10:02 AM, TMFHelical wrote:

    John,

    I think that you are correct about Chimera operating in run-down / liquidating. The question then is how close to book value is it worth? At a discount, it may indeed be worthy of investment, and how much of a discount depends on how long the liquidation may take and how easy the assets are to sell. These aren't agency MBS which trade quite easily. Given that the NLY / FIDAC is wrapping up Crexus, I don't think Chimera will be around long either (outright liquidation of assets or sale of company). At just over a 10% discount to last reported book, the price seems reasonable (fair) for a possible liquidation.

    Its a speculative value play, not income. I am long, but if this gets closer to book value I would let it go.

    Ralph

    Helical Investor

  • Report this Comment On January 18, 2013, at 5:18 PM, jonkai3 wrote:

    --------------

    Annaly's board has a track record of ignoring shareholder votes

    --------------------------

    falsifying info leaves the rest of your blog post more than slightly suspect.

    also Fidac is owned by NLY, that means that the board of directors of fidac Work for NLY. it is like saying: "See Bob works for Fidac" but he also works for NLY.... there must be something fishy going on...

    NLY SET UP CHIMERA for god's sake, they put their staff in to run it....

    what is lacking is your knowledge of the two companies and how they were set up....

  • Report this Comment On January 18, 2013, at 5:23 PM, jonkai3 wrote:

    -----------------

    though, as I discussed last year, the pressure on yields will make itself felt in the long run.

    -------------------

    what is particularly short sighted about this comment is that you seem to be living in a time bubble of only 3 years.

    this is a NORMAL SPREAD, you are trying to compare it to the best market Mreits have ever seen, nor ever will likely see again....

    NLY has made extremely good money going on 900% with reinvested dividends over 15 years on NORMAL spreads of 1 point.... and 30 year mortgage rates have started to GO UP now...

    failure to understand history is not going to make you much money in that "long run"....

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7/22/2014 4:03 PM
CIM $3.17 Down +0.00 +0.00%
Chimera Investment CAPS Rating: ***
NLY $11.30 Up +0.03 +0.27%
Annaly Capital Man… CAPS Rating: ****

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