Wellington Denahan might not always have been front and center with outside audiences, but Annaly’s two co-founders worked closely overseeing the firm’s operations and fine-tuning its strategy. She quietly slid into the CEO chair, although not without a little apprehension. Farrell was not only synonymous with Annaly, he was seen as a pioneer in the field of mortgage finance and an icon of the Mortgage REIT sector.
“Mike was larger than life, and it’s difficult to step into those shoes,” Denahan says.
Denahan’s first 18 months on the job haven’t been easy. Amid concerns over the end of quantitative easing and talk of the Federal Reserve raising interest rates, total return from the FTSE NAREIT Mortgage REITs Index fell nearly 2 percent in 2013. Annaly’s total return dropped 18.4 percent for the year.
Yet, Annaly’s straight-talking CEO remains confident in the direction of the company. The first four months of 2014 showed why. The Mortgage REIT thundered back with a total return of nearly 20 percent through the end of April.
REIT magazine talked with Denahan about the challenges of following a legend, the perception of the Mortgage REIT business and her outlook on the future role of the sector in the broader economy.
For 20 years, we were together at every single investor meeting, capital raising and earnings call, so I was not an unknown quantity to investors or analysts, which made the transition a little easier from that perspective.
A lot of the uncertainty surrounding these markets has been lifted through the education coming out of the crisis.
We have engaged in the process of continuing to enhance our disclosures to address some of the concerns voiced by regulators, policymakers and investors. The market is so much more transparent today. There’s so much more understanding of the market than there was five years ago.
But post-financial crisis, the public is more versed than they have ever been. Th ey have a much better understanding of the varying degrees of risk within the mortgage market. Really, it’s a matter of distinguishing between the sizes of those markets and the types of borrowers in those markets. I do think there has been a fair amount of press to help our understanding of the diff erences and the risks that people are taking.
I also think that the forward guidance and how [the Fed] separates its unconventional policy tool of purchasing assets and growing its balance sheet versus the guidance on forward short-term interest rates will be important. From how I look at it, it’s healthy that they are attempting to move the printing presses to the private sector. That comes through in a steeper yield curve and better interest margins for the banking system and better interest margins for companies like ours.
This is a fairly large market that has to be held by private capital. It can’t always be in government hands. Th at was part of the problem with Fannie and Freddie: I’m convinced that if they were REITs, they’d still be around and wouldn’t be in government hands. I do believe the sector is in the early stages of being the ultimate capital provider for the housing market.
Sign me up for a FREE print subscription of REIT magazine.