Annaly Capital Management's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Annaly Capital Management, Inc. (NLY)

Q4 2011 Earnings Call

February 8, 2012 9:00 am ET


Michael A. J. Farrell – Chairman, President and Chief Executive Officer

Kathryn F. Fagan – Chief Financial Officer and Treasurer


Bill Carcache – Nomura Securities International, Inc.

Jason Arnold – RBC Capital Markets

Jade J. Rahmani – Keefe, Bruyette & Woods

Steven Delaney – JMP Securities

Daniel Furtado – Jefferies & Co.

Richard Shane – JPMorgan Chase & Co.

Michael R. Widner – Stifel, Nicolaus & Co., Inc.

Matthew Howlett – Macquarie Research Equities



Good morning, and welcome to the Fourth Quarter Earnings Call for Annaly Capital Management, Inc. At this time, I would like to inform you that this conference 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 for questions-and-answers after the presentation.

Unidentified Company Representative

This earnings call may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E 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, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability of mortgage-backed securities for purchase, the availability of financing and, if available, the terms of any financing, changes in the market value of our assets, changes in business conditions and the general economy, changes in government regulations affecting our business, our ability to maintain our classification as a REIT for federal income tax purposes, risks associated with the broker-dealer business of our subsidiary, risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory business.

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’ll now turn the conference over to Ms. Wellington Denahan-Norris, Vice Chairman, Chief Investment Officer and Chief Operating Officer. Please proceed.

Wellington J. Denahan-Norris

Thank you, Valerie. Good morning, everyone, and welcome to the fourth quarter 2011 earnings call for Annaly Capital Management. I’m Wellington Denahan-Norris, and joining me on the call today is Kathryn Fagan, our CFO.

Our call today will start with some prepared remarks, after which we’ll open it up for questions. So before I begin, I just wanted to take a moment to let everyone know that Mike Farrell sends his thanks for your expressions of support, and good wishes for his recovery. He is doing well, and we look forward to him leading our next earnings call. As usual, the opening remarks to our call today will be posted on our website, and will include a few reference graph.

The title of the missive today is called Paradise Lost. There was a time when the market was the market, a large collection of free thinking participants who independently evaluated cash flows, earnings, and economic data among many other things in an effort to establish value. A time when skilled and ambitious managers could successfully outperform their less diligent competition through creative interpretation of all that was happening around them. A time when very few people outside of the burn market knew the name of the Chairman of the Federal Reserve. A time when an excentric group of practitioners called Fed watchers would figure out the price of short term money by closely observing the supply and demand of each day. A time when burn market participants would determine long term rate based on levels of debt, credit worthiness of the borrower and inflation expectations. A time when recessions were painful, yet natural part of the business cycle, a call for businesses to evolve or die or for companies and employees to retool, re-educate and re-evaluate the inputs of success.

In the past, we all had a sixth sense, call it commonsense; that protected us more than today’s ever creeping rules and regulations would suggest. We knew, a hot cup of coffee was hot. Today we haven’t said that, not only tells us it’s every short-term intention, but in circular fashion finds it necessary to put out long-term predictions of future policy responses to its own economic forecasts.

The Fed’s own history of economic forecasting would suggest that these are hard to model. I will remind everyone that, Sir. Alan Greenspan was talking about the virtuous cycle of growth related to the productivity in December 2000 only to quickly follow it up with unusual inter-meeting easing to respond to the inevitable and well predicted bursting of the tech bubble in 2001.

Greenspan also ignored both economic and anecdotal data that would suggest his slow and steady policy of small incremental tightening from 2004 to 2006 with insufficient to rain in the growing housing bubble. Minutes to the 2000 FOMC meeting show, there was barely a perception of a problem in housing. And his successor, Mr. Bernanke was tightening policy in the face of overwhelming evidence that the housing bubble was in full deflationary mode. He held the Fed funds target rate at 5.25 well into 2007, when so many cracks had already occurred.

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