Annaly Capital Management Just Hasn't Been the Same Without Mike Farrell

Plummeting book values and management changes have become the new normal at Annaly.

Feb 18, 2014 at 12:53PM


Source: opensourceway.

The latest round of management changes at Annaly Capital Management (NYSE:NLY) has resulted in another drop in the share price, as the future of the venerable mortgage REIT continues to look unsettled.

Annaly has had a rough year, down nearly 30% in the last 12 months. While times have been tough for the entire sector, investors must be mulling the fact that the granddaddy of all mREITs just doesn't seem to be doing as well since the passing of CEO and co-founder Michael Farrell.

Management issues loom large
Since Farrell's passing, Annaly's management model has been changing like the weather since co-founder Wellington Denahan took over the top spot. At last year's annual meeting, shareholders approved the company's changeover from being internally managed to operating under an external manager, even as others in the business were moving in the opposite direction. The makeup of the external manager was interesting, too: All five occupying the top positions were also Annaly board members.

This past October, 12-year Annaly veteran Jeremy Diamond announced he would be leaving the company, where he had been managing director and the head of research and corporate communications. Last month, John Lambiase, a board member for 17 years, decided not to run for reelection, and more recently, Chief Operating Officer James Fortescue and one of Annaly's chief investment officers, Kristopher Konrad, were revealed to be on their way out the door as well.

Too much change ?
This is a lot of upheaval for a well-established company that was previously known and revered for its steadfastness. As fellow Fool John Maxfield points out, Annaly's book value has plummeted since 2012, too -- by almost 20%. Current management, it seems, is having a difficult time filling Farrell's old shoes, despite the fact that Denahan was a partner in the founding of Annaly way back in 1997.

But Denahan has tweaked Farrell's previously consistent investment strategy, most notably by overseeing Annaly's purchase of CreXus Investments. Adding commercial mortgages into the mix isn't necessarily a bad thing; for investors used to a certain style, however, it might have shaken some of the faith built up in the time-proven Farrell business plan.

Management matters -- and so does charisma
Speaking of style, Farrell had a good helping of charisma, which doesn't seem to hurt in the mortgage REIT sector. Even his high yearly compensation of $35 million in 2011, though commented upon, did not hurt his reputation. He was well known for his entertaining manner in conference calls and in his yearly letter to stockholders -- and also for delivering the goods to investors.

He was a self-made man, similar to Warren Buffett -- and he was respected by those in and outside of the mortgage REIT sector. Another high-profile trust manager, Gary Kain, the CIO for agency mREIT American Capital Agency (NASDAQ:AGNC) and hybrid trust American Capital Mortgage (NASDAQ:MTGE), has a similar force of personality.

Like Farrell, Kain also takes charge of earnings calls and presentations, and even when he acknowledges a stumble, is unfailingly positive. At a recent Credit Suisse Financial Services Forum, for example, he boasted that book value dropped only by 5.5% last year -- while his agency REIT's stock price dipped by 14.3%. With the Federal Reserve's taper of quantitative easing already under way, he is not shy about predicting that the worst is over for mortgage REITs.

So far, Denahan has yet to exhibit this type of charm and doesn't seem to take to talking publicly about Annaly on a regular basis. Though this doesn't mean she is necessarily a lousy manager, communication is key when management is such a large part of a company's allure. Add in the change of course from Farrell's well-worn strategy, as well as the current exodus of top-level managers, and Annaly begins to look like a dim replica of its former self under the -- apparently -- inimitable Mike Farrell.

More consistent high-yielding stocks
One of the dirty secrets few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend-paying brethren. The reasons for this are too numerous to list here, but you can rest assured it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Amanda Alix has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information