Followup: Thornburg Mortgage
Thornburg Mortgage (TMA: 0.42 +0.08 +23.53%) gave an almost 2 hour conference call today to review the steps the company has taken to shore up its financial position following the recent mortgage meltdown and hammering of Thornburg’s stock price. During the credit crisis the company lost access to credit markets to fund new mortgages and had margin call as the market value of their mortgage securities fell.
Thornburg management sold off $20 billion of their $56 billion mortgage portfolio, sold $500 million of convertible preferred stock, and acquired ongoing funding of an additional $1.4 billion. Some highlights of today’s call:
- The company’s mortgage portfolio and book value have shrunk by about 1/3 in value.
- They now have funding sources to start originating mortgages again and should start doing so next week.
- Because of the REIT structure of the company the $900 million (plus or minus) capital loss is not counted against income gains. Thus, the company will be profitable going forward and pay out at least 90% of income as dividends.
- The commercial paper market is currently not available for mortgage refunding and Thornburg has had to restructure their borrowing sources. Larry Goldstone indicated he was confident they enough financing sources going forward from here.
- Spreads on jumbo mortgages are currently very good, so when they start originating at a good pace, profitability will be very good.
- Right now they have very little competition in the jumbo market. Many of the players have gone out of business or pulled back to conforming mortgages.
The strong message is the company is still in business and expects to be profitable going forward.
Some rough math: If the former dividend was $2.70 a share, a linear reduction would put it around $1.80. They have sold off their lowest yielding mortgage securities, so a $1.50 to $2.00 dividend seems doable to me. Anywhere in that range is a nice return and should give a boost to the share price.
I am adding TMA to my hypothetical 20 Stock Portfolio (the stocks are real, the portfolio only exist on this blog).
Note: I am a shareholder in Thornburg Mortgage
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Tim, Hi–I just read your insight on TMA–interesting, as I have bought @ $14.00 last week–I’m curious if you looked at IMH as I bought some @ $1.75 and have been a follower for years when it traded much higher.Any comments are welcome.