So, with one teeny-tiny exception, Annaly Capital Management, Inc. (NYSE:NLY) will effectively go on as if nothing happened. As it noted in the press release, “Effective July 1, 2013, Company employees were terminated by the Company and were hired by the Manager.”
But, wait a second, what’s this exception I speak of?
Oh, that old thing? Under the new structure, Annaly Capital Management, Inc. (NYSE:NLY) no longer has to disclose who it hires or how much it pays them. If shareholders — that is, the ostensible owners of the company — want to know this type of information, then tough you-know-what.
“Now,” you say, “but John, Annaly Capital Management, Inc. (NYSE:NLY) has claimed that its now-former executives have come up with a way to ensure they continue to be aligned with the interest of shareholders even though they now work for a separate company, which, of course, only they own.” And yes, indeed they have — though even if the purported solution was legitimate, it still wouldn’t cure the fact that they’re corrupting the disclosure requirements.
According to the management agreement between the newly formed management company and Annaly, “each of the executive officers … must own, respectively, an amount of the Company’s shares of common stock equal to at least six times their respective 2012 base salaries.”
Sounds pretty good, right?
The problem is that “base salaries” are but a pittance of these executives’ overall earnings. In 2012, Annaly’s CEO earned a total of $25.8 million, only $3 million of which was designated as a base salary. In other words, while saying they have to own “six times their respective 2012 base salaries” may sound high and mighty, in reality, it looks like one big farce. The $18 million in stock that former-CEO Ms. Wellington Denahan will have to hold is 20% less than her performance bonus alone last year.
In the interest of transparency, it’s important to recognize that a majority of Annaly’s shareholders did vote in favor of the externalization proposal. But, for reasons I won’t get into here, it’s my opinion that they did so imprudently and based upon pretexts that may or may not turn out to be in their best interests.
I could literally go on and on about the way that Annaly has, in my opinion, failed to live up to the standards that we, as public shareholders, should be entitled to expect in return for our hard-earned capital.
But I’ll spare you.
Let me instead leave you with one thought: If you own shares in this company, I think you are being taken for a sucker. If you had any doubt about this before, then Annaly’s decision to externalize its management should negate any uncertainty.
Now, to be clear, this doesn’t mean you should sell your shares, at least not immediately. Annaly’s stock appears to be in a cyclical trough right now, from which it will likely recover. However, it does mean you should probably think long and hard about whether you’re comfortable reinvesting your dividends in the company, and certainly, for the love of all that is holy, you should think particularly hard before entrusting any more of your money to a group of executives that would act in the manner outlined above.
If you’re on the lookout for high-yielding stocks, I encourage you to look instead at our special free report outlining nine high-quality dividend-paying stocks. All nine of these companies, unlike Annaly, are legitimate concerns that take their responsibility to shareholders seriously.
The article Can Annaly Ever Be Trusted Again? originally appeared on Fool.com.
John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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