NEW YORK--(BUSINESS WIRE)-- Chimera Investment Corporation (NYSE: CIM) announced today that it has estimated that as of September 30, 2012, its GAAP book value was $3.31 per share and its economic book value was $2.95 per share, compared to its estimated June 30, 2012, GAAP book value of $3.08 per share and economic book value of $2.87 per share.
At 15% below book, the stock should be selling for $2.81. Hints of this announcement probably gave us the upward pressure on the stock price yesterday and today.
If NLY purchased CIM at 5% over book, the price on 9/30 would have been $3.48.
| believe that economic book value is far more meaningful than GAAP. Economic book value measures the value of the securities in the current market.. What someone would really pay for the pieces. I was disappointed with the $2.95 econ value. I was looking for at least $3.15. I suspect that this is why the CIM sold off. Forget black pools and nepotism.
Looking at the 10Q from the 3rd quarter of 2011, it appears that CIM was moving more of their assets into Agency RMBS, which rose from 26% of total assets on 12/31/10, to 51% of total assets on 9/30/11. Senior non-Agency RMBS were also reduced by about two-thirds, which probably provided much of the capital required to purchase Agency securities, and also much of the taxable profit.
Over the last year, during which CIM's operations have been hidden from view, the trend established over the first three quarters of 2011 may have continued. Due to the lack of current financials, CIM may have been effectively shut out of the Re-REMIC market and had to rely on Agency RMBS for income. That would fit with the GAAP and economic book values which have been released, and also the fall in taxable income. 2012 might be considered to be CIM's lost year.
Given the situation in the Agency RMBS market, CIM must, ASAP, increase the percentage of assets devoted to the non-Agency market. That may require current financials, for which we've all been waiting. The opportunity cost of past and future delays may be astronomical, so some major lawsuits are likely to emerge immediately after the restatements.
When stock is selling at a 15% discount to book, the mREITs often begin buying their own shares. However, lack of financial reports may preclude such action by CIM.
The reason I mention it is that there are often several occasions per week in which large blocks are traded. I believe these are related to dark pool transactions, in which a large order is placed, and intermediary traders accumulate shares in very small lots over one or more days. Once a sufficient accumulation is reached, the shares are transferred to the primary buyer in one lot, at a time that is chosen by the buyer, at which time the transaction becomes public. Often the chosen time is after regular trading hours. Dark pool trading gives rise to the strange price pattern we often see, in which CIM will trade within one cent for several hours. There may be SEC regulations against CIM using dark pools to repurchase shares, but it seems the best way to make such transactions.