Chimera Investment Corporation (CIM) Has Red Flags You Can’t Ignore: Invesco Mortgage Capital Inc. (IVR), American Capital Agency Corp. (AGNC)

It is always a red flag when a company delays the publication of its financial statements. Chimera Investment Corporation (NYSE:CIM) has not reported its results for all of 2012, and now faces a final deadline from the NYSE, or it risks delisting. This article focuses on the consequences for the company and its investors.

Chimera Investment Corporation (NYSE:CIM) announced that it has obtained a final 30-day extension for listing and trading of the company’s stock to continue on the New York Stock Exchange. The extension granted by the NYSE is subject to ongoing review by the NYSE. The company has until March 15, 2013, to file its 2011 Annual Report on Form 10-K with the SEC. During this period of extension, trading of the shares on the NYSE will remain unaffected. The company had previously received a four month listing extension until Jan. 15, 2013, and a subsequent extension to Feb. 15, 2013.

Chimera Investment Corporation (NYSE:CIM) previously announced that it would delay filing of its Form 10-K for the year ended Dec. 31, 2011 (“2011 10-K”), and its Form 10-Q for the quarters ended March 31, June 30, and Sept. 30, 2012. On Aug.7, 2012, the company announced that its consolidated financial statements included in its previously filed Annual Reports on Form 10-K for the years 2010, 2009 and 2008, and its quarterly reports on Form 10-Q beginning with the quarter ended Sept.30, 2008, and for all subsequent quarters up to the third quarter of 2011 need to be restated, and were therefore no longer reliable. The restatement is not expected to affect the company’s previously reported GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period.

Implications for the company and the investor

It now appears that troubled Chimera Investment Corporation (NYSE:CIM) is getting close to the point when it must reveal its true financial condition to investors. After months of evasion and extensions, the NYSE has now given the company a final deadline to produce its 2011 financials or face delisting from the exchange. A company that does not provide financial statements for a full year means that investors do not have up-to-date information from which to assess the potential of the investment.  I also believe that the continued delay in publishing financial statements, combined with the continued payment of a high dividend, should engender suspicion that the company has more problems than it wishes to admit.

Worse still, the failure to produce financial statements on time means that we have no way of knowing what has happened to the company for the whole of 2012. Each quarter, Chimera Investment Corporation (NYSE:CIM) has provided a book value per share figure that has increased from $2.97 in March 2012 to $3.31 in Dec. 2012.  However, this figure cannot be cross checked in the absence of the supporting financial statements.