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American Capital Agency Corp. Message Board

  • yourbestfriendintheworld yourbestfriendintheworld Mar 14, 2012 3:17 PM Flag

    I think I get it.

    I think I've figured out what caused the secular decline in mREITs today.

    The Fed just ran a stress test on 19 big banks. They asked the question of how far the banks' reserves would go in the case of certain economic-downturn events. 15 of the banks passed cleanly. 3 of the banks did not pass, but would pass if they stopped paying shareholders any distributions (divs, return-of-capital, share buybacks, etc.). One, Ally, did not pass even with flat distributions; its reserves would have gone to mid-single-digits; but it disputes the methodology and the Fed's assessment of its risk portfolio.

    Whatever.

    The point is, until this stress test was conducted, these institutions were restricted on their shareholder distributions, which was a requirement in the federal bailout following the banking meltdown in 2008.

    Immediately following the stress test, several of them, notably JPM and AmEx, increased their distributions (albeit AmEx only went from 16 to 18 cents/share, which is piffle compared to AGNC or MTGE).

    That immediately made them more attractive to Yield bugs, who I believe have suddenly diverted some of their capital from the mREIT market, where they must have been nesting while the big banks were on payout probation.

    Hopefully it's a temporary thing, and doesn't mean that the banks will be competition for high-yield investment, and we can get back to watching our porters lugging baskets of greenbacks up the mountain again.

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