Annaly Capital Management's Q4 2024: Key Contradictions in Dividend Sustainability and MSR Strategies

These are the key contradictions discussed in Annaly Capital Management's latest 2024Q4 earnings call, specifically including: Dividend Sustainability, Mortgage Servicing Rights (MSR) Strategy, and MSR Performance and Hedging Effectiveness:



Economic Performance and Returns:
- Annaly's portfolio generated an economic return of 1.3% for Q4, with all three businesses contributing positive returns, and a full-year return of 11.9%.
- The return was driven by strong performance in the face of volatile fixed income markets and lower economic leverage.

Agency MBS Strategy:
- The Agency MBS portfolio ended the year at $71 billion in market value, with 59% of the firm's capital allocated.
- The portfolio continued to migrate up in coupon, increasing its weighted average coupon to 5%.
- The strategy was driven by better convexity with specified pools and lower supply, despite elevated implied roll financing rates.

Residential Credit Expansion:
- The residential credit portfolio ended the year at $7 billion in economic market value, with $2.7 billion of dedicated equity representing 22% of the firm's capital.
- The business secured $11 billion in residential whole loans and closed 21 securitization transactions in 2024.
- Growth was driven by favorable market conditions for securitization sponsors and the platform's focus on organic strategy.

MSR Portfolio and Valuation:
- The MSR portfolio ended the quarter at $3.3 billion in market value, representing 19% of the firm's capital.
- The portfolio's valuation increased by 3%, driven by a rise in mortgage rates and a steeper yield curve.
- The growth was supported by lower supply and increased demand for MBS, with actual realized prepayment speeds and delinquencies lower than initially modeled.

Capital Raise and Financial Strength:
- Annaly raised over $400 million of common equity through its ATM in Q4, bringing the total capital raised in 2024 to $1.6 billion.
- The company maintained strong market demand for its Agency and non-Agency security portfolios, with unencumbered assets totaling $5.8 billion.
- This capital raise and strong financial strength were beneficial for future growth and resilience amidst market volatility.