9 Reasons I’d Never Invest In
ANNALY CAPITAL MANAGEMENT
It’s hiding
something from
you…
Annaly’s executives have long been the subjects of well-
deserved criticism for unjustly enriching themselves at the
expen...
Nepotism
After founding a publically traded portfolio company
called Chimera Investments, Annaly installed the son of a
board membe...
It disregards
shareholder
votes
At Annaly’s 2011 annual meeting, shareholders voted
overwhelming (1) in favor of holding say-on-pay votes
every year and (...
Accounting
shenanigans
Nothing screams “bad investment” more than an
accounting fiasco. And that’s exactly what took place at
Chimera Investments...
Previous
indiscretions
In 1994, the year Annaly’s managing entity was founded,
its co-founder and former-CEO Michael Farrell was
censured by the ...
It’s getting
riskier
For virtually all of Annaly’s existence, it’s focused
exclusively on agency mortgage-backed securities. As a
result, Annal...
There’s no
incentive to
outperform
As a result of Annaly’s previously mentioned corporate
reorganization, its executive compensation package is now
completel...
The Federal
Reserve
It’s said that one should never fight the Fed. But that’s
exactly what Annaly must do. In an effort to boost the
economy, ...
Industry
headwinds
Annaly’s book value is inversely correlated to mortgage
rates. As mortgage rates increase, the value of Annaly’s
portfolio...
Top dividend stocks for
the next decade
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9 Reasons I'd Never Invest in Annaly Capital Management

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Lays out nine reasons investors should avoid Annaly Capital Management.

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9 Reasons I'd Never Invest in Annaly Capital Management

  1. 9 Reasons I’d Never Invest In ANNALY CAPITAL MANAGEMENT
  2. It’s hiding something from you…
  3. Annaly’s executives have long been the subjects of well- deserved criticism for unjustly enriching themselves at the expense of shareholders. At the 2013 annual meeting only 28% of shareholders supported the compensation of its named executives. In order to hide their pay, in turn, the company has reorganized its corporate structure in such a way that it must no longer disclose the details of its executives’ compensation.
  4. Nepotism
  5. After founding a publically traded portfolio company called Chimera Investments, Annaly installed the son of a board member to be Chimera’s CEO and the sister of Annaly’s now-CEO to be its CFO. What became of Chimera? For the past two years, it’s been embroiled in an accounting fiasco that involved overstating earnings between 2008 and 2011 by 66%.
  6. It disregards shareholder votes
  7. At Annaly’s 2011 annual meeting, shareholders voted overwhelming (1) in favor of holding say-on-pay votes every year and (2) against the reelection of Jonathon Green to Annaly’s board of directors. What do you suppose Annaly did? It ignored both, choosing at the time to hold say-on-pay votes every three years and reelecting Green to the board despite the shareholder discontent.
  8. Accounting shenanigans
  9. Nothing screams “bad investment” more than an accounting fiasco. And that’s exactly what took place at Chimera Investments, one of Annaly’s publicly traded portfolio companies, which, it’s critical to appreciate, is managed by the very same people who run Annaly. Between 2009 and 2011, Chimera reported net income of $1.06 billion. In reality, the figure was only $367 million.
  10. Previous indiscretions
  11. In 1994, the year Annaly’s managing entity was founded, its co-founder and former-CEO Michael Farrell was censured by the NASD, fined $150,000, suspended "30 days from associating with any member of the NASD," and had his securities license revoked. The charges? Among other things, "filing inaccurate [regulatory] reports," "filing [an] incomplete and inaccurate annual audit," and keeping "inaccurate books and records."
  12. It’s getting riskier
  13. For virtually all of Annaly’s existence, it’s focused exclusively on agency mortgage-backed securities. As a result, Annaly’s shareholders have never been exposed to credit risk. But those days are over. Starting last year, Annaly began to diversify its portfolio into assets related to commercial real estate that aren’t similarly covered. In my opinion, it’s an egregious mistake and one that shareholders are likely to pay for in years to come.
  14. There’s no incentive to outperform
  15. As a result of Annaly’s previously mentioned corporate reorganization, its executive compensation package is now completely detached from the company’s performance. Regardless of profitability, they now get a set percentage of shareholder equity every year.
  16. The Federal Reserve
  17. It’s said that one should never fight the Fed. But that’s exactly what Annaly must do. In an effort to boost the economy, the central bank has kept short-term interest rates near zero for much of the past five years. But this is bound to end. And when it does, Annaly’s cost of funds will increase, which is likely to have the concomitant effect of decreasing its earnings.
  18. Industry headwinds
  19. Annaly’s book value is inversely correlated to mortgage rates. As mortgage rates increase, the value of Annaly’s portfolio of mortgage-backed securities decreases. Thus, since there’s essentially only one direction for mortgage rates to go from here (up), there’s also only one direction for Annaly’s book value to go (down).
  20. Top dividend stocks for the next decade
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