Misery Continues for Big Mortgage Players

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The majority of the net proceeds of the offerings will be used to finance the acquisition or origination of additional adjustable-rate mortgages, Thornburg said in its news release. The rest of the money will cover liquidity needs and working capital, possibly including repayment of maturing debt obligations, it said.

Investors may have balked at the dilutive effect the additional shares will have on Thornburg's earnings per share, and the stock initially sank on the news on Jan. 10. The BofA news later in the day helped Thornburg shares regain some ground, and the stock closed 4.6% lower at $8.38 after having fallen as much as 12% earlier in the day.

Thornburg, which is structured as a Real Estate Investment Trust, surprised the market in mid-October when it eliminated its dividend, citing the need to conserve cash for further events related to the credit crisis. But during the fourth quarter, the company successfully met all of its margin calls - or requirements to boost the collateral it posts on loans - from lenders thanks to $500 million in cash it had raised by selling $21.9 billion worth of assets in August, said George at KBW.

In December, the company declared a 25-cent common dividend for the fourth quarter, though its book value dropped substantially as the value of its asset and swaps fell during the quarter.

Company executives recently spoke of attractive investment opportunities with returns on equity between 15% and 20%, George wrote in a Jan. 10 research note. (KBW expects to provide investment banking services to Thornburg within the next three months and makes a market in its securities.)

Although Thornburg said it was raising capital in order to buy assets, Bose said that he thinks part of the market's concern is that the company might want some excess capital on hand in case credit market conditions continue to worsen.

A profusion of weak data from mortgage companies has put pressure on Thornburg's stock price, and asset values prices and liquidity have been extremely weak since the beginning of this year, George said.

Although it acknowledged the attractive yields new investments will probably offer, Standard & Poor's said on Thursday that it had concerns about earnings-per-share dilution stemming from the equity offering at a price below S&P's book value estimate. The stock research outfit reaffirmed its hold rating on the stock but trimmed its 12-month target price to $9 from $10 to reflect lower peer multiples. (S&P, like BusinessWeek, is a division of The McGraw-Hill Companies (MHP).)

Thornburg's book value remains at risk due to lingering hostility from the financing market and the threat to its swap values posed by declining interest rates, Credit Suisse analyst Moshe Orenbuch said in a Jan. 10 research note.

He predicted Thornburg shares would trade at a discount to their $8.20 book value and reiterated his underperform rating and $5 price target. (Credit Suisse does and seeks to do business with the companies covered in its research reports.)

Market perception may become more positive if the company is able to get sufficiently strong returns on the assets it buys, which will be mortgage-backed securities from the secondary market, said George at KBW.

As for Countrywide, analysts may have to follow it from afar as just another name in the giant BofA stable.

Bogoslaw is a reporter for BusinessWeek's Investing channel .