There was this little press release that came out Friday at around 10 PM. It says….

American Home Mortgage Investment Corp. (NYSE: AHM – News) announced today that its Board of Directors has decided to delay payment of its quarterly cash dividend on the Company’s common stock and anticipates delaying payment of its quarterly cash dividends on its Series A Cumulative Redeemable Preferred Stock and Series B Cumulative Redeemable Preferred Stock in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company’s balance sheet and overall liquidity. The disruption in the credit markets in the past few weeks has been unprecedented in the Company’s experience and has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities.

Now when I first saw this on Calculated Risk, I did not think much of it. Lots of companies are having problems because of the sub prime crisis. What’s one more? Besides, Calculated Risk’s only comment in his blog post highlighting this press release was “I can’t recall a declared dividend being “delayed”. This can’t be good.”

This seemed to me to be a no duh statement. Of course a dividend being delayed is not good. But apparently Calculated Risk is one of those dudes who is prone to understating disasters. It became clear in the comment section that Calculated Risk regarded this development as a major disaster.

In one of his first comments he professes to be speechless. Replying to another commentator who argued that there was less than 90 days left until people woke up to the carnage Calculated Risk said….

y.s.wayne, 90 days? How about Monday?

I’ve served on the board of a public company, and I can’t imagine declaring a dividend and then delaying it. That is simply incredible … but I’ve also never had to put out a press release worded like that one: “major write-downs” and “significant margin calls”.

And I’ve never been with a Company that felt compelled to put out a press release in the evening on a Friday either. That had to be an ugly BOD meeting.

Now I have never seen Calculated Risk sound alarmist or predict the short term movement of the market. Normally he is very careful to hedge his bets. For him to talk about carnage coming on Monday was unprecedented. It made me sit up and take notice.

But I still did not understand why this of all things should be such a big deal. Luckily Calculated Risk’s co-blogger Tanta put up a post of her own on the subject titled Saturday Rock Blogging: Speechless. The post itself is just a clip of a rock band playing a song without words, but in the comments section Tanta illuminates the problem for ignorant souls such as me.

All of her comments on the post are worth reading(here, here, and here, for starters), but this one basically sums it all up…

bofiz, to me it’s not just that. It’s that AHM’s stock took a bad tumble a week ago, apparently on a rumor that Lehman was pulling a warehouse facility. Per published reports AHM actually denied that rumor to a reporter. The stock recovered a lot of value (although not all of it) the next day. A week later, we find out they don’t have enough cash to pay dividend.

Surely everyone already knew you don’t cancel a dividend you affirmed 30 days ago on a Friday night at bedtime. I think the problem is that nobody’s going to believe that a lot of companies still have functional access to credit markets unless they fax their bank statements to the WSJ. We’re all wondering what a dividend affirmation means in this climate, not really whether it’s legal or not. (Although I for one suspect that they did it because the clear alternative was even more illegal.)

I feel sorry for a certain elderly gentleman that I know who has most of his retirement savings tied up in Real Estates REIT’s. After all I have read on Calculated Risk, I have a feeling that he is not going to have a fun Monday.

P.S, for extra giggles, read this comment.

Update:7/29/07

Ape Man asked for (and received) Marco Man’s opinion on the matter here.

Calculate Risk has a new post on the subject here.

And the issue has just made Google News. Which means the story is starting to hit a large number news outlets right about now. It is going to be an interesting Monday.