Annaly Swings to $1.11B Loss Amidst Rising Collateral Pledges

TL;DR

**Annaly's massive $1.11 billion loss is a red flag; sell or short before rates squeeze them further.**

AI Summary

Annaly Capital Management Inc. reported a net loss of $1.11 billion for the six months ended June 30, 2025, a significant decline from a net income of $1.05 billion in the prior year period. The company's total assets pledged as collateral increased to $89.7 billion as of June 30, 2025, up from $85.2 billion at December 31, 2024, indicating increased leverage. Residential mortgage-backed securities held by variable interest entities also rose to $10.5 billion from $9.8 billion over the same period. Common stock outstanding increased to 1.05 billion shares as of June 30, 2025, from 1.03 billion shares at December 31, 2024. The company's strategic outlook remains focused on managing its mortgage-backed securities portfolio amidst fluctuating interest rates, as evidenced by the increase in pledged assets. Risks include continued interest rate volatility and potential further declines in net income, as seen in the substantial year-over-year loss. The company also issued 6.95% Series F, 6.50% Series G, and 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, indicating a diversified capital structure.

Why It Matters

Annaly's substantial net loss of $1.11 billion for the first half of 2025, a sharp reversal from a $1.05 billion profit, signals significant headwinds for mortgage REITs. This performance could impact investor confidence in the sector, potentially leading to broader market re-evaluations of interest-rate sensitive assets. For employees, a prolonged period of losses could lead to operational adjustments, while customers might see shifts in lending or investment product offerings. Competitively, this loss could put Annaly at a disadvantage against more stable peers, especially if interest rate volatility persists, forcing a re-evaluation of its portfolio strategy.

Risk Assessment

Risk Level: high — The company reported a net loss of $1.11 billion for the six months ended June 30, 2025, a stark contrast to the $1.05 billion net income in the prior year, indicating significant financial deterioration. Furthermore, total assets pledged as collateral increased to $89.7 billion from $85.2 billion, suggesting higher leverage and increased exposure to market fluctuations.

Analyst Insight

Investors should consider reducing their exposure to NLY-PJ given the substantial net loss of $1.11 billion and increased leverage. Monitor future interest rate movements closely, as these will heavily influence Annaly's profitability and asset valuations.

Key Numbers

• $1.11B — Net Loss (For the six months ended June 30, 2025, a significant reversal from $1.05B net income in the prior year.)
• $89.7B — Assets Pledged as Collateral (Increased from $85.2B at December 31, 2024, indicating higher leverage.)
• $10.5B — Residential MBS in VIEs (Increased from $9.8B at December 31, 2024, showing growth in securitized assets.)
• 1.05B — Common Shares Outstanding (Increased from 1.03B at December 31, 2024, indicating potential dilution.)
• 6.95% — Series F Preferred Stock Rate (Part of Annaly's diversified capital structure.)

Key Players & Entities

• ANNALY CAPITAL MANAGEMENT INC (company) — filer of the 10-Q
• $1.11 billion (dollar_amount) — net loss for the six months ended June 30, 2025
• $1.05 billion (dollar_amount) — net income for the six months ended June 30, 2024
• $89.7 billion (dollar_amount) — total assets pledged as collateral as of June 30, 2025
• $85.2 billion (dollar_amount) — total assets pledged as collateral as of December 31, 2024
• $10.5 billion (dollar_amount) — residential mortgage-backed securities held by VIEs as of June 30, 2025
• $9.8 billion (dollar_amount) — residential mortgage-backed securities held by VIEs as of December 31, 2024
• 1.05 billion shares (dollar_amount) — common stock outstanding as of June 30, 2025
• 1.03 billion shares (dollar_amount) — common stock outstanding as of December 31, 2024
• SEC (regulator) — regulates financial filings

FAQ

Risk Factors

• Interest Rate Volatility [high — market]: Annaly's performance is highly sensitive to interest rate fluctuations. The significant net loss of $1.11 billion for the six months ended June 30, 2025, compared to a $1.05 billion net income in the prior year, underscores this risk. Increased assets pledged as collateral to $89.7 billion from $85.2 billion indicates higher leverage, which amplifies the impact of rate changes.
• Leverage and Collateral Requirements [high — financial]: The company's total assets pledged as collateral increased to $89.7 billion as of June 30, 2025. This substantial increase from $85.2 billion at December 31, 2024, suggests increased reliance on borrowed funds and potentially higher margin calls if asset values decline or interest rates rise.
• Portfolio Value Decline [high — financial]: The substantial net loss of $1.11 billion for the first half of 2025 points to potential declines in the fair value of Annaly's mortgage-backed securities portfolio. The increase in residential MBS held by variable interest entities to $10.5 billion from $9.8 billion could exacerbate losses if these assets are negatively impacted by market conditions.
• Common Stock Dilution [medium — financial]: The increase in common stock outstanding to 1.05 billion shares from 1.03 billion shares as of December 31, 2024, could lead to dilution for existing shareholders, impacting earnings per share and overall shareholder value.
• Preferred Stock Issuance Costs [medium — financial]: Annaly has issued multiple series of preferred stock with fixed rates (6.95% Series F, 6.50% Series G, and 6.75% Series I). While diversifying capital, these preferred dividends represent a fixed cost that can pressure net income, especially during periods of declining asset yields.

Industry Context

Annaly Capital Management operates within the real estate investment trust (REIT) sector, specifically focusing on mortgage REITs. This industry is highly sensitive to interest rate movements, credit spreads, and housing market conditions. Competitors also face similar challenges in managing portfolios of mortgage-backed securities and leveraging their balance sheets.

Regulatory Implications

As a publicly traded company and a REIT, Annaly is subject to SEC regulations and accounting standards. Changes in interest rate policies by central banks and evolving financial regulations can significantly impact its business model and profitability.

What Investors Should Do

1. Monitor interest rate trends closely.
2. Analyze the impact of increased leverage.
3. Evaluate the common stock dilution.
4. Assess the cost of preferred stock financing.

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the $1.11 billion net loss and increased pledged assets of $89.7 billion.
• 2025-07-30: 10-Q Filing Date — Public disclosure of the company's financial performance and position for the period ending June 30, 2025.
• 2024-12-31: End of Fiscal Year 2024 — Prior period benchmark for assets pledged as collateral ($85.2 billion) and common shares outstanding (1.03 billion).

Glossary

Assets Pledged as Collateral

Assets that a borrower has pledged to a lender to secure a loan. If the borrower defaults, the lender can seize these assets. (An increase in pledged assets, such as Annaly's $89.7 billion, indicates higher leverage and potential risk if asset values decline.)

Variable Interest Entity (VIE)

A legal entity that is subject to consolidation by a primary beneficiary because it has insufficient equity to finance its activities or it operates for the benefit of a party that has a disproportionate share of the entity's risks and rewards. (Annaly's holdings in VIEs, particularly residential MBS, are significant ($10.5 billion) and contribute to its overall financial exposure.)

Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock

A type of preferred stock that pays a fixed dividend for an initial period, after which the dividend rate adjusts based on a benchmark interest rate. It is redeemable by the issuer and has cumulative dividend rights. (Annaly's issuance of these preferred stocks (Series F, G, I) diversifies its capital structure but adds fixed dividend obligations.)

Mortgage-Backed Securities (MBS)

A type of asset-backed security that is secured by a mortgage or a collection of mortgages. (Annaly's portfolio heavily consists of MBS, making its performance directly tied to the mortgage market and interest rate environment.)

Year-Over-Year Comparison

The six months ended June 30, 2025, show a dramatic shift from net income to a net loss of $1.11 billion, a stark contrast to the $1.05 billion net income reported in the prior year period. This indicates a significant deterioration in profitability. Assets pledged as collateral have increased, suggesting higher leverage, while common shares outstanding have also seen a modest rise, potentially signaling dilution. The company's exposure to residential MBS within VIEs has also grown, reflecting continued investment in its core portfolio despite market headwinds.

Filing Details

This Form 10-Q (Form 10-Q) was filed with the SEC on July 30, 2025 regarding ANNALY CAPITAL MANAGEMENT INC (NLY-PJ).

View full filing on EDGAR

View Full Filing

View this 10-Q filing on SEC EDGAR