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Mortgage REITs plunge on Carlyle Capital troubles
March 6, 2008 / 3:40 PM / 10 years ago

Mortgage REITs plunge on Carlyle Capital troubles

NEW YORK (Reuters) - Shares of U.S. mortgage real estate investment trusts plunged on Thursday after Carlyle Capital Corp Ltd CARC.AS, a European firm that invests in mortgage-backed securities, failed to meet margin calls and received a notice of default.

Several mortgage REITs fell more than 20 percent and were among the top percentage losers on the New York Stock Exchange.

Carlyle Capital and the mortgage REITs invest in investment-grade mortgage-backed securities issued by Fannie Mae FNM.N and Freddie Mac FRE.N.

Mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac saw spreads widen against U.S. government debt for a fourth straight day on Wednesday.

Carlyle Capital, a Dutch-listed affiliate of private equity firm Carlyle Group CYL.UL, said it had received margin calls totaling more than $37 million from seven financing parties on Wednesday and was unable to meet the demands for extra collateral to cover its market positions for four of them.

“We believe this news will pressure the stock of Annaly and MFA, who run a similar business model, given increased concern about tightening repo-lending standards across banks and brokers,” said UBS analyst Omatayo Okusanya II, who covers the mortgage REITs Annaly Capital Management Inc (NLY.N) and MFA Mortgage Investments (MFA.N).

Okusanya said that he did not believe Annaly and MFA would receive similar margin calls because they are not as heavily leveraged as Carlyle Capital.

Analysts at Keefe, Bruyette & Woods, which on Thursday downgraded Anworth Mortgage Asset Corp (ANH.N) and MFA to “market perform,” also removed Capstead Mortgage Corp (CMO.N) and Annaly from the firm’s Best Ideas List, citing lower book values due to the lower value of the Freddie Mac and Fannie Mae bonds for all four of the companies. The analysts also said they believed the companies would have to carry more excess capital to lower leverage.

Anworth shares of were down 24 percent to $6.72 in afternoon trade on the New York Stock Exchange. Capstead was down 24.8 percent to $12.26, Deerfield Capital Corp DFR.N 24.4 percent to $2.17, Annaly 15.4 percent to $16.34, and MFA was off 14.6 percent to $7.42.

In Amsterdam, Carlyle Capital fell 58.3 percent.

Reporting by Ilaina Jonas; editing by John Wallace and Gerald E. McCormick

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