Chimera Investment's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Chimera Investment Corporation (CIM)

Q3 2011 Earnings Call

November 21, 2011 10:00 a.m. ET


Matthew Lambiase - President and Chief Executive Officer

Christian Woschenko - Head, Investments

Alexandra Denahan - Chief Financial Officer

William Dyer - Head of Underwriting

Jay Diamond - Managing Director, FIDAC, Member of Chimera’s Board of Directors

Choudhary Yarlagadda - Head of Structuring at FIDAC


Bose George - Keefe, Bruyette & Woods

Jason Weaver - Sterne Agee

Steven DeLaney - JMP Securities

Daniel Furtado - Jefferies

Arren Cyganovich - Evercore Partners



Good morning and welcome to the Third Quarter Earnings Call for Chimera Investment Corporation. At this time, I would like to inform you that this event is being recorded and that all participants are in a listen-only mode. (Operator Instructions) At the request of the company, we will open the conference up to questions and answers after the presentation.

Unidentified Company Representative

This earnings call may contain certain forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions, some of which are beyond our control, may be identified by reference to a future period or periods or by the use of forward-looking terminology such as may, will, believe, expect, anticipate, continue or similar terms or variations on those terms or the negative of those terms.

Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including but not limited to, our business and investment strategy; our projected financial and operating results; our ability to maintain existing financing arrangements, obtain future financing arrangements and the terms of such arrangements; general volatility of the securities markets in which we invest; the implementation, timing and impact of and changes to various government programs affecting the capital markets and the economy. Our expected investments; changes in the value of our investments; interest rate mismatches between our investments and our borrowings used to funds such purchases; changes in interest rates and mortgage prepayment rates; effects of interest rate caps on our adjustable rate investments; rates of default or decreased recovery rates on our investments; prepayments of the mortgage and other loans underlying our mortgage-backed or other asset-backed securities; the degree to which our hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations; tax law, and rates; accounting guidance and similar matters; availability of investment opportunities in real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition and market trends in our industry, interest rates, the debt securities markets or the general economy.

For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see risk factors in our most recent annual report on Form 10-K and all subsequent quarterly reports on Form 10-Q. We do not undertake and specifically disclaim any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.


I will now turn the conference over to Mr. Matthew Lambiase, President and Chief Executive Officer. Please proceed, sir.

Matthew Lambiase

Thank you, Andrew. Good morning and welcome to the third quarter 2011 Chimera Investment Corporation earnings call. This is Matt Lambiase, President and CEO, and joining me on the call this morning I have Alex Denahan, our CFO; Chris Woschenko, the Head of Investments; Bill Dyer, our Head of Underwriting; Choudhary Yarlagadda, the Head of Structuring at FIDAC; and Jay Diamond, the Managing Director at FIDAC and a member of Chimera’s Board of Directors. We are here to answer questions after the prepared comments.

On November 18, the company filed its third quarter 2011 10-Q. We made the filing later than usual because in conjunction with the review by our independent auditors we determined that ASC 325 should be applied to determine the GAAP treatment of other than temporary impairments or OTTI related to our securities rated less then AA, as well as non-rated non-agency RMBS and other subordinated RMBS that are not of high credit quality. And that, that analysis had not been completed.

The analysis is now complete and after my comments Alex will give a detailed explanation of ASC 325, as well as a discussion on how the OTTI changes will be reflected in our GAAP reporting going forward. However, I think it’s important for investors to understand that this analysis is a non-cash change in our GAAP accounting results. This does not affect our previously announced book value or taxable income in any period. Chimera pays its dividends based upon its taxable income not GAAP income. So the results of the change of evaluation to ASC 325 will have no impact on the company's prior or future dividend distribution.

Now this morning there are two items influencing our operating environment that I would like to discuss. First, as you know the financial markets continue to be turbulent and the recent news of sovereign debt deals in Europe’s welcome but probably not sufficient to calm the markets of the doubts of capital adequacy of its European banks. European banks may be forced to raise large amounts of capital and require to sell assets in the near future. In our opinion it’s most likely that they will see non-core, non-European assets like U.S. dollar denominated mortgage backed securities, CMBS or corporate bonds. When this happens, there may be a significant opportunity for those companies that have the ability like Chimera and the liquidity to take advantage of the selling.

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