Sunrider
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Posts posted by Sunrider
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Adam Spittler on Collins vs FHFA
Collins vs FHFA – Total new wild card to the litigation, and extremely strong argument. $fnma $fmcc
Isn't this curable simply by changing the basis on which the director is appointed?chris/Merkhet?
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I think this just means that the court either has received a request for a rehearing or en-banc hearing or it expects such to come.
Chris/Merkhet?
C.
http://www.glenbradford.com/wp-content/uploads/2017/02/14-5243-1662092.pdf
Does anyone know what this one means? Is the court considering an en banc review?
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@beer
if the sole recovery path is by lawsuit, junior prefs are looking many years still down the road until you see actual money, and my expectation is that the amount will be a very low % of par. see eg Starr v AIG. common gets a lower amount than junior pref.
so if there is value to be found, it can be found in a recap of some kind. now, suppose mnuchin wanted to keep the senior pref outstanding at $117B for fnma, and exchange all of that for common through some sort of cramdown, and tell junior pref and common, look to your court damage remedy. junior pref and common would have no value arising from the capital structure. this assumes that fnma equity value is about $120B ($10B net income X 12PE).
so if that is mnuchin's recap path, then both fnma common and pref are a short.
but i am long both. why? because i think mnuchin is smart enough to know that if treasury tries to milk the senior pref for future value and cram down both junior pref and common (and treasury's warrants), he will have a hard time raising another $60B in capital (though as has been pointed out, in effect, wc fields might argue otherwise).
so by recapping with the warrants, mnuchin has done two things: he has used the senior pref to get the repayment at 10% that the treasury deserves (since this is the original deal), but no more, and he is using the warrants to say that he respects the junior pref and common shareholders' rights, which will let him raise that additional money, and let him realize alot of value from the warrants.
the warrants were always the common's card to play in the event the cases wimp out (as they have to date).
Chris
Shouldn't that argument tip you back towards common (compared to your statement the other day that you're rebalancing towards pref)?
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It seems to be me that he basically changed the topic on the GSE question? The little he did say is basically just "Nothing will happen soon."
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...except that isn't what happened.
Haha - but we're now in Trump times where alt-facts rule (and that holds not only for those alt facts you agree with!)
;)
The one thing I do want to throw into the debate: If there is one thing that seems to have always happened is that one can find investors in pretty much anything, depending on price. You kind of have to assume a global market strike of the vast majority of capital if you assume that the government can't wipe out common and junior and turn around and say 'Dear market, here is this great insurance business and I'm going to sell you new equity at a price that allows you to make 20% for the next x years with comparatively little risk'.
The fact that the risk is that the government does again what it did in the past will be ignored. Just as people keep investing in debt of countries that default and in equity of companies run by people previously convicted of fraud or associated with it.
I think we should not take too much comfort from the idea of what a rational person should do - investors en masse just aren't made that way.
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That may be so - with my limited understanding of the US legal system, my worry is that this is up to the Supreme Court, which chooses what to get involved with and doesn't. Is there another mechanism to get a decision on the constitutionality of a law?
Thank you.
C.
+1. Seems simply antithetical to the concept of checks and balances from which our founding fathers placed emphasis. I'm assuming that my layman view took too simplistic of an approach here, but why not just challenge the constitutionality of HERA in court?
Berkowitz has said previously (and I paraphrase), "It's pretty simple. Either HERA doesn't grant them the power to do whatever they want unchecked, or HERA is unconstitutional."
So, I'd have to assume the next step is to challenge the constitutionality of HERA.
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Ignoring politics for a moment (remember until the Trump / Munchkin surprise we all assumed that eventually the law would take its course), I have two questions for the legal brain trust here:
(1) Philosophical: As a layman this judgement basically reads as though the judges confirmed that congress can make laws that are not subject to judicial review, or that give government actors the power to do things that are beyond judicial review. Am I missing something? This seem inimical to the fundamental tenets of a constitutional democracy with a separation of powers?
(2) Practical: Chris notes that the order confirms indirectly that a taking and breach of contract has taken place. Does this benefit the Fairholme case, which I believe basically ask for compensation for a takings and a breach of contract?
Chris - incidentally, you thought that a remand (well, different kind of remand) would benefit common, which is why you were leaning that way - are you now switching to preferred?
Thank you.
C.
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Chris/Merkhet
How does all of this influence the Steele cases? It would seem to me that the Delaware corporate law cases are pretty much independent as the argument is simply that the 100% dividend is not permissible ab initio and thus power to make it so can't be created through subsequent legislation on top of the underlying state corporate law?
Thanks!
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Indeed. Wonder what the lawyers on the board think a court would make of that?
I'm left wondering if Session's DOJ will soon lead the Perry panel toward a reversal. Sounds crazy, yes. But a ruling against the government would:
1. provide political cover against the "hedge fund giveaway narrative",
2. blunt congressional opposition,
3. speed along a settlement,
4. allow a jump ahead toward recapitalization negotiations.
This whole issue is complicated by the looming cut in the corporate tax rate, which would reduce the GSE's DTA valuation and force a government draw. A quick resolution of the mortgage giants would avoid this scenario, and a Perry reversal would move things along.
Reversal would add a trump (no pun intended) card to Mnuchin's hand: he could invoke the non-severability clause (6.12) in the SPSPA and unwind the entire thing. This has been mentioned on this board before. Mnuchin might need the reversal first so he has the unilateral authority he needs.
It would have to be rare for the defendants in a case to suddenly argue in favor of the plaintiffs though. Would Brown/Ginsburg/Millett get suspicious and pore over the case even more, or just go along with it and be glad they don't have to deal with it anymore?
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Haha ... i.e. What you should expect in Any admin? Whether one side or the other? I just hope this gets resolved before trump gets impeached for giving state secrets to Russia, taking money, or something like that.
i deleted my prior comment. it seems that DOJ is still resisting some motions. i dont know why sessions doesnt go into DOJ civil offices and start taking names...
on feb 8, fhfa filed with the court opposing fairholme's request to present more discovery materials
on feb 9, counsel for usg agreed to remove "protected information" designations
pretty inconsistent, no? sessions was confirmed feb 8
interesting, hardincap. let's see how this plays out. i would think DOJ becomes less adversarial, but that may be wishful
I'm left wondering if Session's DOJ will soon lead the Perry panel toward a reversal. Sounds crazy, yes. But a ruling against the government would:
1. provide political cover against the "hedge fund giveaway narrative",
2. blunt congressional opposition,
3. speed along a settlement,
4. allow a jump ahead toward recapitalization negotiations.
This whole issue is complicated by the looming cut in the corporate tax rate, which would reduce the GSE's DTA valuation and force a government draw. A quick resolution of the mortgage giants would avoid this scenario, and a Perry reversal would move things along.
All true and not that crazy especially regarding #2, but who knows.
One of my hopes is that there are seriously damaging docs in terms of gov case, as well as, seriously damning docs regarding the Obama admin. internal deliberations, i.e. hypocrisy, lies, deceit. I think there is such bad blood now between Trump and dems. that he will take advantage of any opportunity to expose/damage their credibility.
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That's very interesting. Thank you for pointing that out. I had read those docs but didn't recall seeing that.
Having read the offering circulars for Fannie Mae preferreds, I don't see how a forced conversion can happen at all.
FNMAS circular: http://www.fanniemae.com/resources/file/ir/pdf/stock-info/series_s_12062007.pdf
Page A-5, Section 3(d):
(d)The Series S Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. In addition, Holders of Series S Preferred Stock will have no right to require redemption of any shares of Series S Preferred Stock.
Page A-6, Section 7(b) (partial):
(b)Without the consent of the Holders of Series S Preferred Stock, Fannie Mae will have the right to amend, alter, supplement or repeal any terms of this Certificate or the Series S Preferred Stock (1) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation that may be defective or
inconsistent with any other provision herein or (2) to make any other provision with respect to matters or questions arising with respect to the Series S Preferred Stock that is not inconsistent with the provisions of this Certificate of Designation so long as such action does not materially and adversely affect the interests of the Holders of Series S Preferred Stock
It appears a forced conversion would be inconsistent with the first sentence in section 3(d). And we already know that the major preferred holders are willing to fight for their contractual rights in court, so a "we're going to do this anyway, see you in court" stance by the government is unlikely.
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No I don't need to be spoon-fed an opinion as I'm usually not short of them myself. I also disagree with myself on a regular basis - I find it quite healthy and stimulating.
Your posts are not beneath me, it just that I have a hard time deciphering what it is that they actually say. Granted, English is not my first language, so this may be entirely down to my ineptitude. Yet, I did take the time out of my day to point that out because I appreciate the level of conversation happening on this board. Parsad and the members have done an admirable job of keeping these fora constructive and pretty civilised, with most conversations taking place in the threads they should be in.
This is not 'my' board. Yet, purely to help you find an outlet for what appears to be a lot of words twirling around your head, I'd say that you may find the Yahoo Finance boards to be a better echo chamber into which to discharge what's on your mind - the audience is likely more receptive and engaging on ad-hominem attacks there than it is here.
S.
Aww, sunny, baby, do you really need to be spoon fed an opinion? Wow, ok big guy, you go lay all the eggs you want and after you've put something on a line, anything on any line, get back to me tough guy. Thing is my not so sunny disposed friend, your opinions carry identical weight as mine. So don't get your panties in a twist sport, ruling is coming to ahead soon. So whether you're giving or getting, we all just want to get a little ahead.
Good advice? Coming across something you don't like, move on. Is this your board? Meantime, sunny, leave my posts alone. Should be quite easy to do since they're below you. I can assure you my gains or losses on this trade will dictate the results. Regardless of some snippity little shit that felt the need to take time out of his day to question what I do with mine. Honestly, sunny, gfy. But what do I expect from an avatar. Just another small person hiding behind a big website.
PM,
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You're kind of a pussy if you don't want your thoughts read publicly.
Or a great marketer.
I'm sorry LC, but anyone who criticizes the President of the United States to his business partners and then doesn't want the public to get wind of it is a coward who is unfit to be called an American citizen, in my opinion.
Every American is granted the right to the freedom of speech but he's crossing a line if he thinks he can shit talk the President behind his back and then still expect to receive his share of the economic rewards of the President's tax plan, which is no doubt the true reason he doesn't want his letter published and out in the open. Americans know that enemies of the President are unpatriotic and he probably doesn't want his business to be crushed by the regulators because of his absurd political beliefs.
What's wrong with talking shit behind the President's back? Isn't he and others entitled to their own opinions? You can't criticize the President and still be patriotic? I'm not defending Klarman and taking stand against the President.
One more point, his letters were always hard to come...It's a not new policy because of this administration...
+1
(The president is not, fortunately, all there is to the US. He's just a guy who has been elected to discharge the duties of the office of the POTUS. As with all holders of public office, let's hope he does his job well and carries out his duties with respect to the laws and constitution of the country as well as the system of checks and balances that has been put in place for a reason. Wisdom appears to be too much to hope for with this particular guy, but we should all wish that he finds that in the not so distant future. Oh, and it's not 'his' tax cut. At the very least is that of his administration and the lawmakers who vote for it. More comprehensively, it is that of the entire society, which chooses, through its representatives, to enter into that particular trade-off between tax, spending, debt, growth, etc.)
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Trump will make your country less safe, irrespective of how many planes he will claim to punch out of the sky. Sadly, for someone living in a big country, without much actual (not Fox/CNN/choose your poison of choice) exposure to the rest of the world, it is hard to imagine that things look, feel, run differently elsewhere to what one knows and that relationships between nations cannot be conducted as a series of independent deals (or at least not very successfully or sustainably).
Now, back to the topic at hand: What is your message actually telling us with respect to the GSEs?
As I said before, I REALLY struggle to extract meaning from your verbal dump. :o
Thanks.
You hear that folks, POTUS said New NAFTA Deal could pay for the Wall. Doesn't sound like any other imminent source of funds are being earmarked for public coffers anyways. Then again, I'm no Psychiatrist, (it's true) but isn't that how stalkers read their tea leaves too? I swear I saw a sign in my toast this morning that looked like Warrants were being cancelled. Or maybe, that was just my subconscious aligning what it thinks of this investment theory(read:gamble), with my breakfast of choice, toast.
Ah yes, nice to see MSM highlight the Ayatollah's rant out about the "real" US and declaring that now you will see our ire. As if it's POTUS's fault that today, Feb 07, 2017, due to POTUS IranBan, radical wackjobs all over the world are going to start blowing themselves up in suicide attacks while yelling allahu akbar. Like one of Jeffrey Dahmer's victims fighting back to Jeff's reply "Oh ya, well now I'm going to eat you!" Wait for it, next death, POTUS fault, 100%. Won't matter who, what, where, when, why. Unfortunately how radicals view things as well, facts don't matter anymore, anywhere.
I appreciate the wide latitude here, but I find this all relates to the constant drip-drip Chinese Water Boarding Slo-Mo Stlye, Antagonizing of POTUS. What's in it for him? imho....He will never, ever receive widespread intangibles such as respect, recognition, admiration etc (deserved or otherwise) unless he personally punches a suicide bomber's plane out of the sky. Grotesquely, sadly, but assuredly so, unlike what they did with obama (read:FastFurious/Benghazi/VA etc) MSM will keep a body count in POTUS watch.
Uh, that was morbid, so I give you this. I noticed a disclaimer on a bottle of sleeping pills the other day that read "May cause drowsiness." May.....cause drowsiness!? WTF is that, wasn't that the point!? What's next, a disclaimer on a box of condom's that reads "May contain nuts" lawyers huh....sheesh... ;D 8) ::)
PM,
I have absolutely no idea what any of this means but damn, I have GOT to buy some FNMAS.
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Can we please, largely, stay on the topic at hand in this thread? :o
We've done rather well in most of the 570 pages in this regard so far!
;D
You hear that folks, POTUS said New NAFTA Deal could pay for the Wall. Doesn't sound like any other imminent source of funds are being earmarked for public coffers anyways. Then again, I'm no Psychiatrist, (it's true) but isn't that how stalkers read their tea leaves too? I swear I saw a sign in my toast this morning that looked like Warrants were being cancelled. Or maybe, that was just my subconscious aligning what it thinks of this investment theory(read:gamble), with my breakfast of choice, toast.
Ah yes, nice to see MSM highlight the Ayatollah's rant out about the "real" US and declaring that now you will see our ire. As if it's POTUS's fault that today, Feb 07, 2017, due to POTUS IranBan, radical wackjobs all over the world are going to start blowing themselves up in suicide attacks while yelling allahu akbar. Like one of Jeffrey Dahmer's victims fighting back to Jeff's reply "Oh ya, well now I'm going to eat you!" Wait for it, next death, POTUS fault, 100%. Won't matter who, what, where, when, why. Unfortunately how radicals view things as well, facts don't matter anymore, anywhere.
I appreciate the wide latitude here, but I find this all relates to the constant drip-drip Chinese Water Boarding Slo-Mo Stlye, Antagonizing of POTUS. What's in it for him? imho....He will never, ever receive widespread intangibles such as respect, recognition, admiration etc (deserved or otherwise) unless he personally punches a suicide bomber's plane out of the sky. Grotesquely, sadly, but assuredly so, unlike what they did with obama (read:FastFurious/Benghazi/VA etc) MSM will keep a body count in POTUS watch.
Uh, that was morbid, so I give you this. I noticed a disclaimer on a bottle of sleeping pills the other day that read "May cause drowsiness." May.....cause drowsiness!? WTF is that, wasn't that the point!? What's next, a disclaimer on a box of condom's that reads "May contain nuts" lawyers huh....sheesh... ;D 8) ::)
PM,
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I think any talk of impeachment is nothing more than wishful thinking from the left. Trump like him or not is a smart guy with excellent legal counsel. I say no chance at all that he gets impeached.
i agree. i would be giving 7 to get 1 all day long, until 12/31/17
Indeed. Shame these brokers don't allow you to bet the other way. If anyone knows of one, please let me know.
Thanks
C.
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Pauly, excuse my lack of english mastery..But this is what I picked up from your new(er) diatribe: "hey obama, as an aside you're an ahole."... With which I fully agree. Again.shits and giggles here, but you ever notice we're the only ones talking about this shit here!!!!!!!!!!!!!! aside from couple boards, i mean to say, zip and friking pip, nada, zero, zilch, squat, bubkus, stugatz, a minga, dzere, sweet phoque (seal landed who?nice) all, nothing on MSM is what i'm trying to say.......some perspective, oh say cnn would looooooooooove to report right about yesterday about how some trump supporters could reap massive rewards via Mr. Mnuchin. ya it's all over net twitter, actually that reinforces the point even more so. i mean, you have one of the most substantive legal developments in the case this week involving the writ no less, not least of which, the loss comes with a judge overturning exec priv on 99.9% of some 11,000 docs. does that register as a scandal during obama's legacy cnn? hey obama, as an aside you're an ahole. ( we know msm would love to know about the missing 8 documents that the big bad trump organization was claiming executive privilege on though) yet cnn/fox/abc/cnbc haven't touched the potentially multi billion dollar bias. well, we all know why. because badouchebag obama has a, lol, sacrosanct legacy and the little snowball they didn't want to touch out of "journalistic integrity" has developed into a potential avalanche of a monster payout for some hf's (ackman stands to make 2billion per ten bucks common, god knows the rest after converting).
except that my spin on money as will cnn's be, obfuscates the small fact that obama wanted to screw homeowners out of the 30yr mortgage, plain and simple, but cnn isn't that friking dumb to know that if they begin with the end of the story, they'll have to run it back to the beginning, which will lead the public by the nose, pinched or not because it took hedge funds suing obama to figure it out, that the whole thing was a lie.
so when exactly are they going to break the story? whenever it may be, i'm sure it will have the blazing headline, breaking news, "cnn has just discovered a decade old lawsuit involving potentially billions of dollars to the victors, back after this......,(7 to 1 first ad is pharma 25-1 pharma will have an ad during break) yet despite that, let's spin Mr.Mnuchin as being rainmaker here, ya know, in keeping with our "journalistic integrity" is trump enriching himself during the presidency, forget clinton's 2billion, like predicting dominoes,
i'm just curious as to how it will unfold from that perspective. not one talking head has ever mentioned this debacle, wow, crack reporting there msm. i'm certain they'll never address why they never brought it up before either
look folks i'm not saying i wrote the pelican's brief here or anything, but if this shit goes down as predicted and i disappear, it's because i went to europe for a month, so relax... i'll be back, trust me, either as first person to call myself a loser, or not.......
... and with due respect, precisely because it takes so much time to read stream-of-consciousness ramblings and synthesise messages from them, I've started to skip straight over Pauly's posts. That's not to say that I'm not interested in what you have to say - as I am sure are many others - but you may get your points across better if you put them more succinctly and in complete sentences. ;)
Thank you.
C
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Chris (and the other legal minds here): You indicated at some point that the standard/process was one of a review for a clear error in law (as is indeed noted in the order) and not a de-novo review. Reading this, in many ways it feels exactly like the judges looked at the documents and formed their own opinion on how relevant they are to the case before Sweeney - without the background and, it would appear, on fairly rough-and-ready rules such as 'does it mention the PSPA or the sweep?'. If a doctor were to diagnose patients in this way, she would be sued for malpractice.
- What recourse does one have in a case like this?
- Sweeney appeared to be annoyed with government delays before, so one would presume the 50 documents get released quickly. What then? Do the plaintiffs have to ask her to rule on release of the remaining 10,944? On what basis, given that an in-camera is clearly not feasible and given the fact that the sample proved (in a statistic sense) that the government is applying the privileges too broadly?
Thank you.
C.
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Parsad
Whilst I respect you enormously and have no doubts about your integrity - I'm offended by the statement you made at the bottom.
You have no idea what you're talking about.
Having grown up on the wrong side of the iron curtain, I can tell you that any such regime is not 'more or less' the same as Western style democracy. In China, I very much doubt you can speak your mind (look at what's going on in HK with people not wishing to come under the party rule thumb) ... at least not if your views or beliefs are contrary to that of the ruling party. In China, if the government wants to take your land - it will. And will give a fig about your rights or compensating you.
This does not happen in Italy, Spain, Germany, the UK, France, the US, Canada, etc. Etc. So I seriously think that was an inconsiderate and ill considered remark.
C.
I think that many of you miss the forest for the trees. I also think that a lot of the leftist money managers on this website should be highly thankful to the American people for electing Trump since otherwise they would have had a lot of explaining to do with their clients for poor returns had it not been for this late stage rally.
While Trump is unable to be politically correct and will keep on making inflammatory statements, here is what the tangible actions are since he is in on Friday:
1- Monday: meets with business and union leaders to discuss job creation, producing locally, taxes, regulations.
2- Today: meets with the big 3 auto CEO's again on the same topic. NBC reports that he will push ahead with Keystone XL and Dakota pipeline.
3- .... You get the picture?
I find that a whole lot better than the communist well spoken orator that we have had for 8 years. All he could do was to tell bankers that he was the only protection between them and the furious public. Then he regulated and created this no hope, no dream, moribund atmosphere. Well, maybe that I am vastly exagerating but, he certainly did not live up to my expectations of Hope and Change.
I will make the two following predictions and you can laugh at me in 4 years or before if I am wrong:
1- In 4 years, the world will do more trade than ever before and by a long shot. When America is at the top of its game, then everyone has to up its game. What people perceive as a trade war will turn into a massive push for every country to be more efficient and innovative which will drive up jobs, growth and innovation. Quite different than this zero sum game being played now.
2- China will no longer be communist. If we can get rid of this regime then the Taiwan, South China Sea, Hong Kong and North Korea issues go away. I do believe that it is the strategy of this administration or to liberate the Chinese people from this evil. If you are looking for a Hitler then look to this leadership instead and these comments are exactly what Hitler used to get to power following The Crash:
Cardboard
Cardboard, have you been to China in the last few years? It's nothing like you are saying or imagining. They've embraced capitalism in such a way, that it would make Adam Smith blush. I saw as many people suffering there, as I do in Canada or the United States...and the prosperity was equal as well.
In terms of the deception, control, restriction of freedoms and rights, etc, it's probably no better or worse than any Western democracy. I would say that such behavior will become part of this new U.S. administration rather quickly as well...both driving the capitalist engine and censoring the press, freedoms, rights and deception is already part of their manifesto. Cheers!
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I thought we had been through this question of whether all current shareholders benefit from damages awarded about two hundred pages ago on this thread (probably in the context of whether current shareholders have standing) :)
Chris - one question though - the clause he cites from the SPSA seems an interesting find. However, even if this implies what he thinks it does, it's hard to see for even the Trump Treasury to just reverse everything, including warrants, and walk away from $b of value. Your take on this clause?
Thank you.
C.
Can anyone comment on the situation regarding statue of limitations with respect to what is and is not possible regarding the conservatorship? As I'm sure many have, I just read Charlie Harrison's new article on SA. I would love to believe much of what he proposes, but I'm not sure that what he's saying is even legally possible. In addition, the theory of treasury returning money to the gse's seems way far fetched.
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Is there actually a retail broker that allows you to margin common or pref?
Well not sure how all in to be with this thing
Not sure if I understand the question correctly (or that my answer is right):
1. NWS reversed basically means that cash is returned to GSEs, so BS now has a cash position and the equity position also gets bumped (as they swept their retained earnings)
2. You then begin to adjust, reducing the liability accrued for pref div for the first year and the cash, then you reduce the senior pref by the amount you would've had available in that year beyond paying the senior pref div
3. Repeat 2 until you've gone through all the money 'swept' back to the GSEs in (1)
Of course, there may be a shortcut to this if there is an outcome in which warrant prices get adjusted, junior pref is converted, etc.
???
C.
i'm thinking that the senior preferred principal amount would go away...or down to about $10B before any new capital issuances.
so you would have a $10B/yr net income company=>over $100B equity value and only $20-30B of equity senior to the common. which is why if there is to be a recap, common wont be a zero. cause if there is to be a recap, no one will fund into fnma if the senior pref stays outstanding
Got it - this is helpful, thanks.
Just to humor my final understanding - how would the capital structure be modified from an accounting perspective (I just want to have the full picture in numbers under this scenario). You would reduce the Sr Pref Equity position obviously, but what would the corresponding entry be? If you reduce the St Pref surely that causes your residual equity balance to go down so the other side of the entry would only bring it back to where it is now?
Right, though since the face value is what it is, I would expect pref holders to not accept common at a discount ... especially after all the contract rhetoric that Berkowitz has used.
Views?
The pref will get their money. It is just going to be a matter of how long it takes. If the current capital structure prevails, and I seriously doubt it will, the pref won't get a dime until the GSEs have a fortress balance sheet, and are making a ton of money every quarter. Until that point it makes no sense to ship precious capital out to holders of a security that represent capital that has vanished, that is gone, destroyed, or taken. The pref stock will not come close to par value until those dividends are turned on again. And unless there is a major recap, that could take years. I would study the case of the RBS preferred as an analogue. The pref languished for years because the dividends were turned off.
The hedge funds are not going to wait aground until GSEs build enough capital to start paying dividends on the pref. That is not their end game. Mom and pop might. But not Paulson and Perry. They will want an exit, liquidity, and an "event" that gives them a pop, and a good ROI on their original cost basis. They will be very open to a restructuring that allows them to exit the pref. They also might be very interested in getting a foothold as a common shareholder in a fully restructured, public, GSE.
The current capital structure of the GSE complex does not make any sense at all. It made sense in 2003. Not today. I believe you are going to see a massive, out of court financial restructuring, that could involve a merger of Fannie and Freddie, as well as a reduction of pref capital, and an increase of common equity. But tons of capital has been removed from the companies. Capital was destroyed in the great recession. And the GSEs need a much higher common equity ratio to move forward and become viable. And, after all that has transpired, that is why the current capital structures do not make sense.
Contracts are altered all the time in business when circumstances change. All the time. And they have radically changed here. The NWS was a prime example of a contract that was unilaterally altered. Proving that this isn't KANSAS anymore. So for the good of the GSEs and the country, contracts here will be altered. So that the GSEs can move forward with the correct balance sheet, contracts will be altered. I don't see how the GSEs move into the next phase with the existing cap structure.
Hi All
Perhaps it's more helpful to distinguish between longer term value in a steady-state income scenario (with senior prefs gone) and the likely reaction of share prices to various events. I think that is what Chris has been getting at ... if there's a favourable court outcome and the NWS is reversed, it's likely that the market will shortcut past the complexities of looking at how capital might be restored straight to 'holly crap, this is now worth something, I better get in'. The common is liquid and probably more easily understood (by average market joe) than the prefs, so they'll (hopefully) pop.
In the longer term, the common can only be worth anything if the prefs are also worth something (ignoring votes attached to shares). So it does matter how the GSEs are restored to capital health. Nothing wrong with 10x on prefs on conversion to common (as long as I can elect to receive cash instead :) - that's the whole point and the title of this thread. And why not? That's precisely Fairholme's point: they represent a contract and before GSE are able to give value to anyone else, they need to honour that contract.
C.
FNMA and FMCC preferreds. In search of the elusive 10 bagger.
in General Discussion
Posted
Sessions also Russia tainted as per FT this morning - this is getting to become a problem-why are these people too unaware in the first instance and then even more daft in the second to lie about it or not to disclose...