"With only about 1/3 of capital allocated to agency RMBS we expected Dynex to escape much of the book value pain that hit mREITs in 2Q. We were wrong," wrote Keefe Bruyette & Woods analyst Michael Widner.
Dynex shares were down 9.16% to $8.73 in early trades Thursday.
Dynex posted core earnings of 30 cents per share after the close Wednesday, roughly in line with analyst estimates. Still, the book value decline proved more significant as shares closed at 1.07 times second-quarter book, while Dynex's peers are mostly valued in the low '90s of book, according to Widner.In hindsight, Dynex's biggest mistake was to deploy proceeds from a mid-April preferred shares offering into adjustable rate mortgages that are fixed for 10 years and then adjust to a market rate once a year thereafter. Dynex bought the securities just as valuations were peaking, according to Widner. Other problems for Dynex in the quarter were that assets that were intended to perform as credit assets proved more sensitive to interest rates than the company had projected, Widner wrote. He also argues Dynex's hedges "were too short for portfolio duration extension." -- Written by Dan Freed in New York. Follow @dan_freed
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV