CapitalSource Sells $1.5 Billion in Agency MBS

CapitalSource Inc. (CSE: 11.48 0.00%), the REIT with banking aspirations tied to a pending acquisition of retail banking branches of bankrupt Fremont General Corp., said Monday in a filing with the Securities and Exchange Commission that it has been unloading agency mortgage-backed securities at a frenetic pace since the start of April, selling $1.5 billion in the latest attempt to deleverage. The company also sold $591.4 million in agency MBS during the first quarter, by way of comparison.

The $1.5 billion sale generated a loss of $36.1 million, CapitalSource said.

The company’s stock took a nose dive on the news Monday, as a result, closing off nearly 15 percent at $11.19 per share. Helping push the stock further was a second warning that after the second quarter, the Maryland-based REIT may reel in its dividend “to redeploy in attractive lending opportunities.”

CEO John Delaney has said previously that he wants to position the company to acquire further deposits in the months ahead. The company announced earlier this month that it would sell 30 million shares in an effort to play offense and avoid the capital markets.

The prospects of a cut dividend clearly aren’t favorable for investors, but part of the reason may be a possible exit from REIT status after this year. REITs are required to distribute 90 percent of their income to shareholders each year, a requirement that CapitalSource said in the filing “may require us to acquire a significant amount of additional residential mortgage or other real estate assets” before the end of the year, once the Fremont acquisition is complete.

Disclosure: The author held no positions in CSE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.