Tuesday, August 14, 2007

Thornburg Mortgage CEO On CNBC

Erin interviewed the CEO of Thornburg Mortgage on Kudlow and Company today.

As you can see from the above graph, TMA hasn't been on a hot streak lately. In fact, it looks like the company is blowing up. It was halted just before the market closed today and they came out and said that they'd be paying their dividend late in response to "significant disruptions in the mortgage market which resulted in the sudden and unprecedented decline in the market prices of its AAA-rated mortgage securities that began on August 9, 2007 and subsequent increase in margin calls related to its repurchase agreement financings on those securities."

Sounds great! Well, for whatever reason, the stock is bid up a dollar after hours. Perhaps everyone thought they were going to announce bankruptcy. The graph sure looks that way.

So Larry Goldstone, CEO was interviewed by Erin. I have to give her props, she asked him hard questions.

She asked him, "So, is Chapter 11 next?" No, he said... Chapter 11 doesn't solve our problem.

She said there were a bunch of rumors out there that mentioned they were going under. He said that "80% of the rumors are untrue." He continued, "We have been able to meet all of our obligations. We are navigating our way through this process."

Goldstone said that "companies are not funding their loans" and that we are in the midst of "a severe credit crisis."

Erin asked him if his lenders were "forcing them to liquidate" to which he replied in part, "They are making it difficult for us to rollover financing."

Perhaps the most important quote I took away from the interview was Goldstone stating that they "cannot finance mortgages using any of the vehicles they've used over the last 14 years."

Erin pressed, "So how can you continue as a going concern?" to which Goldstone replied, "We have been selling securities in our portfolio. If we had to sell all of our securities, even at these 'bear market prices' we'd still have $14.28. So we're coming back, we just have to rebuild."

Erin asked, "But what if there is no buyer? Then the value is zero!" to which Mr. Goldstone replied, "That's just not true. There are buyers of mortgages."

I'm not sure how the interview concluded, because I had to split. A friend with a boat, took us out to enjoy the good weather. The market could melt, but still, I'll take boat drinks.

TMA closed at $7.61. After hours it's trading up at $9.48. Not spectacular, but still, quite a bounce.


Will said...

DT - saw that same interview... very very interesting! Was impressed w/ Mr. Goldstone- he was clearly very stressed, yet kept his cool and explained his situation well.

My first thought was that "subprime" and "jumbo mortgage" don't go together- or else we may be looking at the start of the avalanche... but then Goldstone explained that they had, I think 56 mortgages in default out of 38,000. That made me feel much better. The trouble is not with the quality of their mortgages.

He said their trouble is liquidity- everyone panicking and no institutions will buy even very high-quality paper like theirs, so they are in a cash pinch due to the fear of touching anything labeled "mortgage."

It may have been his cogent explanation that accounts for the stock's rise afterwards. Hope he's not full of sh*t!!

Dinosaur Trader said...


Absolutely. He said they are all being painted with the same ugly brush. Then again, GS said they had no trouble with their hedge funds a week ago... who can you trust?

But what's the deal then? Why is everyone selling TMA and not DSL or FED? Where there's smoke there's fire, no? Or is this just herd mentality?


newequity said...

I would be a big buyer of TMA on Wednesday, trust me DT. We will run this baby up a few points, watch and see.