Would the mortgage woes also hit Thornburg's quarterly dividend payout of 68 cents per share? “I'm pretty confident we're going to be able to make that payment,” said Thornburg President Larry Goldstone, in an interview with CNBC.
On October 17, the mortgage company canceled its dividend.
"We are concerned about the potential for another mini-liquidity crisis in the market going forward," Goldstone said as the company announced a third quarter loss of $8.83 per share, vs. earnings of 64 cents a year ago.
Goldstone said the board of directors were divided on whether to pay out a dividend. The company had the money, he said, but wanted to save cash because of heightened worries about structured investment vehicles, or SIVs, that hold hundreds of billions of dollars of mortgage debt. Rising mortgage default rates have hurt the value of this debt, putting at least some SIVs in trouble.
The decision to not pay out a dividend was “unexpected and unusual,” according to many mortgage analysts.
Who pays the salaries of these highly-paid Wall Street clowns?
Like other big players in the mortgage-backed securities market, Thornburg sold billions of dollars of its mortgages in the last two weeks of August—at a huge discount—in a move to increase its liquidity during the ongoing credit crunch.
Declining mortgage values sank Thornburg's book value to $12.40 per share on August 20 from $19.38 per share at the end of June.
Apparently the old adage still applies: If it sounds too good to be true, it probably is. In our view, Goldstone's equivocating notwithstanding, a dividend yield on its common stock of about 21 percent (stock price - $13.00) was more than convincing evidence that Thornburg would not be able to continue paying its common stock dividend.