3 Things That Could Hobble Annaly Capital

Annaly Capital will be reporting first-quarter earnings soon, when investors will get a glimpse of how 2013 has been treating the mega mortgage REIT. With that in mind, I thought it would be a good idea to take a look even further ahead in the year, since several political issues are on tap that concern mREITs in general, and Annaly in particular.

So, without further ado, here are three factors that I feel might trip up Annaly later this year.

1. Concerns about an mREITs bubble
Regulators have been peering at mREITs for some time, wringing their hands over the amount of assets they own and worrying that a failure of these trusts might put the economy at risk. Recently, these trusts were on the agenda of the Financial Stability Oversight Council, as that body considers various financial entities that could pose a threat to the economy.

Under particular scrutiny is Annaly and its fast-growing peer, American Capital Agency , which together, hold nearly $235 billion in assets. Despite their relatively small participation in the mortgage-debt market, mREITs could find themselves facing new rules that limit their use of leverage -- and as a result, their stellar returns.

2. Congress is eyeballing the REIT sector's special tax status
The U.S. Congress is currently going over the tax code with a fine-tooth comb looking for loopholes, and the REIT industry's special tax status is coming under review. Though The Wall Street Journal notes that a change in the law that allows REITs to avoid corporate taxes on income as long as they pay out 90% of earnings isn't certain, neither is it out of the realm of possibility -- possibly making dividends like those paid by American Capital Agency and its hybrid cousin American Capital Mortgage a lot less hefty.

3. Shareholders may balk at Annaly's new management paradigm
Annaly's management will have a big question for its stockholders at this year's annual meeting, asking for their blessing to segue from being an internally managed company to using an external management team -- one made up of the very people that now rule the roost.

Of course, many mortgage REITs are externally managed, such as the aforementioned American Capital Agency and American Capital Mortgage. However, this proposal seems to behoove Annaly's management more than its shareholders -- and, as my colleague John Maxfield has pointed out, will also protect the board members from having to publicly disclose their salaries. If a large enough contingent of investors questions the wisdom of this move, the meeting could turn into a rumpus that could damage Annaly's credibility.

This latter scenario will play out next month, while the political issues will likely take longer to simmer. Meantime, Annaly continues to work on its acquistion of CreXus Investment , the purchaser of commercial mortgage-backed securities that Annaly hopes will help relieve some of its QE3-inspired malaise. If there is one thing Annaly investors can count on, it is that the rest of 2013 won't be boring.

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