Annaly Capital Management (NLY) risk factors, FY2024 10-K

Risks Related to Our Liquidity and Funding

1. 01Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses
2. 02Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions
3. 03We may exceed our overall Company target leverage ratios
4. 04We may not be able to consistently achieve our optimal leverage
5. 05Effectively managing our liquidity affects our results and financial condition
6. 06Our results of operations are materially affected by conditions in the markets for mortgages and mortgage-related assets, including Agency mortgage-backed securities, as well as the broader financial markets and the economy generally
7. 07An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets adversely affects our profitability
8. 08Differences in timing of interest rate adjustments on our interest earning assets and our borrowings affect our profitability
9. 09published by the Federal Reserve Bank of New York
10. 10It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts
11. 11Our use of derivatives exposes us to counterparty and liquidity risks
12. 12Futures transactions are subject to risks analogous to those of cleared swaps, except that for futures transactions we bear a higher risk that collateral we have posted is unavailable to us if the FCM defaults
13. 13Securitizations expose us to additional risks
14. 14Our use of non-recourse securitizations exposes us to risks which could result in losses to us
15. 15Counterparties may require us to enter into restrictive covenants
16. 16We may be unable to profitably execute or participate in future securitization transactions
17. 17Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our preferred stock
18. 18Provisions contained in Maryland law have anti-takeover effects, potentially preventing investors from receiving a “control premium” for their shares
19. 19shares owned by the acquirer, by our officers, or by our employees who are also directors of our company. We are currently subject to the Maryland Control Share Acquisition Act
20. 20We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in the future
21. 21Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions
22. 22Accounting rules related to certain of our transactions are highly complex and involve significant judgment and assumptions. Our application of GAAP produces financial results that fluctuate from one period to another
23. 23Any new laws modifying the relationship between Fannie Mae, Freddie Mac and the federal government could affect our business model or business operations
24. 24The Truth in Lending Act or other similar consumer protection laws and regulations expose an owner of whole mortgage loans and mortgage servicing rights to potential civil and administrative liability
25. 25Our Residential Credit and MSR businesses are subject to complex and evolving legal and regulatory requirements, including how we oversee and are responsible for the actions of our third-party service providers, which exposes us to increased compliance, legal, and regulatory risk
26. 26Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations affects our business
27. 27We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy and security, which increases the cost of doing business, compliance risks and potential liability
28. 28businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach
29. 29We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other investment accounts, including potential regulatory risks
30. 30Loss of our Investment Company Act exemption from registration would adversely affect us

Risks Related to Our Taxation as a REIT

1. 31Our failure to maintain our qualification as a REIT would have adverse tax consequences
2. 32Our distribution requirements limit our flexibility and could affect our ability to execute our business plan
3. 33Distributions to tax-exempt investors may be classified as unrelated business taxable income
4. 34We have flexibility to pay dividends in our own stock
5. 35A TRS is a corporation, other than a REIT or a qualified REIT subsidiary, in which a REIT owns stock and with which the REIT jointly elects TRS status. The term also includes a corporate subsidiary in which the TRS owns more than a 35% interest
6. 36TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a TRS can pay to its parent REIT may be limited by REIT gross income tests
7. 37If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a penalty tax
8. 38Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
9. 39Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate otherwise attractive investments
10. 40Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us
11. 41The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT
12. 42Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
13. 43Qualifying as a REIT involves highly technical and complex provisions of the Code
14. 44The 100% tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of structuring CMOs, which would be treated as prohibited transactions for U.S. federal income tax purposes
15. 45Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our stockholders
16. 46Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests
17. 47Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations
18. 48New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to remain qualified as a REIT
19. 49The soundness of our counterparties and other financial institutions affects us
20. 50We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties, which could cause us to suffer losses
21. 51Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders
22. 52We may experience declines in the market value of our assets
23. 53Investments in MSR expose us to additional risks
24. 54Our non-Agency mortgage-backed securities, mortgage loans, and MSR are affected by economic slowdowns or recessions, which could lead to financial losses in our assets and a decrease in revenues, net income and asset values
25. 55An increase in interest rates adversely affects the market value of our interest earning assets and, therefore, also our book value
26. 56Actions by the Federal Reserve may affect the price and returns of our assets
27. 57We invest in securities that are subject to mortgage credit risk
28. 58Our investments in real estate and other securities are subject to changes in credit spreads as well as available market liquidity, which affect our ability to realize gains on the sale of such investments
29. 59Geographic concentration exposes investors to greater risk of default and loss
30. 60Inadequate property insurance coverage impacts on our operating results
31. 61Our assets may become non-performing or sub-performing assets in the future
32. 62We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and warranties
33. 63Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all weaknesses in such assets
34. 64When we foreclose on an asset, we may come to own the property securing the loan
35. 65Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets
36. 66Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior securities
37. 67Our hedging strategies may be costly, and may not hedge our risks as intended
38. 68We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of climate change

Operational and Cybersecurity Risks

1. 69Reliance on inaccurate models or the data used by models exposes us to risk
2. 70We are highly dependent on information systems and networks, many of which are operated by third parties
3. 71Cyberattacks or other information security breaches of our Company's, service providers' or counterparties' systems or networks affect our business, reputation and financial condition
4. 72We may utilize artificial intelligence, which exposes us to liability and affects our business
5. 73We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services related to our business
6. 74Our investments in residential whole loans subject us to servicing-related risks
7. 75The performance of loans underlying our MSR related assets is affected by the performance of the related mortgage servicer
8. 76regulations. In light of the current regulatory environment, such exposure could be significant even though we might have contractual claims against our servicers for any failure to service the loans to the required standard
9. 77We are subject to prepayment rate risk
10. 78Defaults on mortgage loans underlying Agency mortgage-backed securities typically have the same effect as prepayments because of the underlying Agency guarantee
11. 79We are subject to reinvestment risk
12. 80Competition may affect ability and pricing of our target assets
13. 81We may enter into new lines of business, acquire other companies or engage in other strategic initiatives, each of which may result in additional risks and uncertainties in our businesses
14. 82Some of our investments, including those related to non-prime loans, involve credit risk
15. 83Any inability to attract, motivate and retain qualified talent, including our key personnel, affects us

Other Risks

1. 84The market price and trading volume of our shares of common stock may be volatile and issuances of large amounts of shares of our common stock could cause the market price of our common stock to decline
2. 85If we issue a significant number of shares of common stock or securities convertible into common stock in a short period of time, there could be a dilution of the existing common stock and a decrease in the market price of the common stock
3. 86of common stock to decline, regardless of our financial condition, results of operations, business or prospects. It is impossible to assure you that the market prices of our shares of common stock will not fall in the future
4. 87We may change our policies without stockholder approval