Topic: How To Invest

Good morning Pat: Annaly Capital is buying out Hatteras Financial Corporation. What do you think of this acquisition and of Annaly Capital? Thanks.

Article Excerpt

A: Annaly Capital Management, $10.72, symbol NLY on New York, is a New York City-based real estate investment trust that owns and manages a portfolio of mortgage-backed securities. The trust has agreed to buy Hatteras Financial Corp., $16.29, symbol HTS on New York, for $1.5 billion. Formed in 2007, Hatteras is also a mortgage REIT: it owns and manages residential mortgage investments, primarily secured by adjustable-rate mortgages on single-family homes. Most mortgage REITs have been trading at discounts to the value of their assets. That makes it hard for them to grow by selling more units, which would dilute the holdings of their existing investors. Both Annaly and Hatteras have about 88.6% of their assets in mortgage-backed securities. Annaly’s portfolio comprises mostly fixed-rate securities—primarily 30-year fixed-rate mortgages. About three-quarters of Hatteras’ interest-earning portfolio is based on adjustable-rate mortgages. The acquisition of Hatteras lets Annaly buy assets at a discount and further diversify its holdings. However, the trust still faces limited growth prospects. Annaly borrows…

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