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No. of Recommendations: 16
Annaly Capital reported its Q2 earnings last night and had their call this morning.

http://investor.annaly.com/file.aspx?IID=113558&FID=2474...

There was a substantial loss as they realized losses from expiring short term hedges. Focusing on core earnings, things looked a bit better. I tend to key on 3 items.

- Book value
For the past 2 quarters, book value has risen. Book ended the quarter at $13.23 an increase of 7.6% from the prior quarter end. The shares are still at a discount, and I expect they will continue to be until the company shows it is willing to take on more leverage and improve the ROE. They iterated again in the call that they aren't planning this while the fed continues to be active, and questioned possible extension of the 'controlled' FED exit that seems to be planned.

- Rate Spread
Improved to 1.26% from the 0.9% reported last quarter. But this is still low. About as good as can be expected for now. Above 2% is a rarity, but > 1.5% is more comfortable. The improvement was due to lower cost of borrowing, not an increase on yield on assets. Not sure how sticky this will be.

-ROE
The company changed how it reported ROE to 'GAAP' and 'core' ROE a bit over a year ago. The 'core' was new, and replace the 'GAAP after items'. Similar, but core had run a couple % points lower while they reported both. In the past (days of Mike), NLY commented on targeting an ROE of the mid teens. The core ROE was 9.24%. ROE scales with more leverage (so does risk, but less predictably), so seeing this low is a signal of NLY continuing to be conservative. Leverage ticked up just a slight bit to 5.3:1 (with ROE per unit of leverage at 1.74%).

So ... I continue to hold NLY and continue to think that reasonable. I don't see any reason to be aggressive with the holding as I hardly think this an ideal time to buy (best when rates are higher, and headed down).

Ralph
Helical Investor
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