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American Capital Agency Corp. Message Board

  • chiwhitesux chiwhitesux Sep 22, 2011 2:38 AM Flag

    Any secondary offering in the near future?

    Do you guys think another secondary offering is in the horizon? Just wondering....want to get in again. Options are cheap. Worried about a secondary. Thanks.

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    • Thank you Ray. And that leads right back to the SEC. When is corporate action beneficial to management and not to shareholders. ;o)

    • yourbestfriendintheworld yourbestfriendintheworld Sep 23, 2011 12:40 PM Flag

      That scares me.

      Setting the majority of executive bonuses on anything other than the size of MY bonus means he has a fiduciary impetus to work at cross purposes to me.

      The managers should get paid a simple percentage of the profits. If they don't win, they get the poverty rate plus car fare. Simple.

    • I can't imagine that happening. Management gets paid based on the size of the asset base; contracting it doesn't seem likely.

    • You got me thinking. Let me run this by you Terr. If the markets want to drop the sp significantly below book, would it not be a considerable benefit to sell some MBS at profit and use that with runoff proceeds to buy back shares? Might be time to at least authorize a share buy back. :)

    • Eagle, this is, and will soon reveal itself, to be the 1000 pound guerrilla in the room. The SEC is concerned both with leverage and outside management. We are in for another quarter of bumpy rides for sure. My problem, sorry Doc, is that I have lost confidence in the BATESAT range. What is the new buy at $28. Buy at $25, $26, $27????

    • I think you understand my thought intent better than I do :o)

      Now I descend just a bit deeper into the rabbit hole...the SEC. Here is why I think leverage is a real issue with them. Of course the SEC's function here is to protect shareholders interests <insert laughter here>, but that is supposedly their intent. Now look at the pace of spos sectorwide. They have been squeezing BV closer to offering prices, some like IVR dilluting BV. Now the question is approaching as to when offerings are indeed doing all for management and nothing for shareholders. Thus the SEC is looking for comments. IMHO it's a valid concern. Whew....headspinning stuff.

    • Terroir and everyone else ruminating on this subject.

      I am on record as saying that there is no SPO coming. I may be wrong ... who knows for sure .. other than mgmt. But I find it difficult to believe that even a greedy mgmt ... hungry for more mgmt fees - wants to come out with an offering into the teeth of a global mkt selloff and a litany of bad macro announcements re: the mreit mkt (SEC inquiry and rumored HARP+ refi program) and the recent history of a failed IPO re: AGNC's sister mreit MTGE that came out and crashed back in August when we had the last big mkt selloff.

      It's also a BAD time to be buying new mbs that is funding at new low spreads every day due to operation twist and other Fed manipulation. For all of the above reasons I'm hard pressed to think that mgmt is thinking about a new offering.

      I've sold off approximately 2/3's of my AGNC and all of my CYS mreit holdings - because of macro concerns. That said - we're getting close to BOOK here so if there is NO SPO coming we're getting close to another buying opportunity. Future net interest rate spread earnings on the EXISTING portfolio will likely be somewhat diminished going forward, but even if earnings drop to $1/qtr that still close to a 15% return @$27/share - when 10 and 30 yr treasuries now yield 1.7% and 2.8%, respectively.

    • Well its almost by definition that MBS's that have increased in value over cost will have a higher coupon than those presently available. The only other way is to have less refinance&default than what was expected when the MBS was originally bought.

      The second situation is less likely on average due to increasing refinance rates.

      The first is very likely in the present and forecast interest rate environment.

      Therefore, when you sell an MBS with a higher coupon rate than the replacement MBS your spread is decreased. Conversely you can sell it and leave your book reduced, ie reducing leverage. This will have an even greater effect on income.

      The only other way is to change the average duration, substituting one part of the curve for another such as the Fed plans. Selling short duration MBS to substitute for 30's for example. Perhaps in the current environment they could get away with this, but as you know, if short term rates increase you are in a real fix.

      As you say, we don't know so will see next 10k or perhaps in an upcoming financial presentation. Meanwhile we have only our gut to go on.

      Its wrong to say that the Fed is pipelining this into the sector. They are attempting to orchestrate lower longer term rates while anchoring short very low. What the sector does to manage that is not the Feds concern. The street does believe that AGNC can navigate better than average.


    • "Am I wrong in thinking that selling premium MBS as you suggest to book capital gains as you suggest would in fact reduce spread to increase short term returns. Interesting play on mortgaging future returns, no?. Even if they sell MBS and don't reinvest, leverage reduces and so does spread income even to a larger degree."

      I would think that depends what MBS you sell and what its interest bearing rate is in relation to the rest of the portfolio. The lower the rates on the bonds you sell, the higher the spread should rise on the rest. But the main concern would be the gains that are able to be realised on the existing MBS in relation to maintaining BV and dividend production. It's fine to maintain dividends with cash proceeds if you've been able to make several quarters worth of net gains over the original principle.

      I cannot answer that one because I don't have access to their book. Like I said, it might sound crazy, but I think this is what the fed is trying to pipeline to this sector.

    • Sorry all, I posted and ran, can't stand to watch my net worth tumble by the minute.

      Doc, I totally agree, better to have the SPO done for the reasons given PLUS the accompanying prospectus and 10k will provide much needed updates on key metrics. I too hope for Taymere that the $26.72 was a solid floor, but I just don't know right now what supports it. Need to see more, that's why I am so "Censored"at the Credit Suisse "analysis".

      Eagle, I am not suggesting that they would necessarily sacrifice book to make the SPO, just saying that BVPS has been affected by several cross currents and in fact they may have room to give some back so as to meet a prime objective of increasing management fees.

      Am I wrong in thinking that selling premium MBS as you suggest to book capital gains as you suggest would in fact reduce spread to increase short term returns. Interesting play on mortgaging future returns, no?. Even if they sell MBS and don't reinvest, leverage reduces and so does spread income even to a larger degree.

      Anyway, there may be an SPO announced as I post this, so we will see.


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