AGNC Investment Corp. (AGNC - Free Report) recently issued an update for its business operations and portfolio management. This is in light of the coronavirus pandemic and the consequent market disruption and dislocations, along with the substantial reduction of liquidity.
Management noted that amid substantial volatility and lack of liquidity in Agency mortgage-backed securities ("Agency MBS"), the company has adopted aggressive measures to sail through the current turbulence, strengthen its liquidity position and alleviate risk.
The company has had access to Agency MBS repurchase agreement or repo funding without interruption. It has timely addressed all margin calls received. Moreover, the Federal Reserve’s actions, particularly, the significant acquisitions of Agency MBS have aided in valuations improvements and the broader mortgage market.
As of Mar 27, 2020, AGNC Investment’s total investment portfolio is estimated to be roughly $91 billion. This includes $21 billion of To-Be-Announced ("TBA") Agency MBS and $1.1 billion of non-Agency securities. Also, cash and unencumbered Agency MBS are estimated to be $3.7 billion. This does not include the $1.3 billion of capital plus excess margin held at the company’s broker-dealer subsidiary Bethesda Securities or $0.3 billion of unencumbered non-Agency securities, the company said.
However, tangible net book value per common share is estimated to range between $12.35 and $13.25, after deductions for common and preferred dividends announced through Mar 31, 2020. This denotes a year-to-date decline of 25-30%. Nevertheless, the company’s "at risk" leverage is estimated to be 9.7x and the company said that it is within its typical operating range. Also, the company's on-balance sheet leverage is estimated to be 7.4x.
Notably, the coronavirus outbreak is wreaking havoc on the global economy, with the number of infected patients in the United States skyrocketing. The crisis has battered most industries, and the economic and financial consequences have adversely impacted the mortgage markets.
Investors have resorted to shedding risk exposure across all asset categories and boost cash position, resulting in pricing pressure and liquidity issues in MBS markets. Moreover, chances of delaying or defaulting on mortgage payments by homeowners have escalated. Nevertheless, the Fed’s efforts to support the market’s smooth functioning are likely to provide some relief.
As such, AGNC Investment, investing mainly in residential mortgage-backed securities, for which the principal and interest payments are guaranteed by a U.S. Government-sponsored enterprise or a U.S. Government agency, will benefit and focus on portfolio repositioning.
Shares of this Zacks Rank #2 (Buy) company have plunged 40.2% so far in the year, narrower than its industry’s fall of 50.6%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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