Jcmeg35

Apparently the CBOE came out with a report today on the GSEs "Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions" https://www.cbo.gov/publication/56496 I have yet to read it and assesment. Initial thought is clearly a + to see more governement agencies putting out reports on recap. Hard to think this work would be put in if wasn't a high likelyhood of it happening.

I could be wrong but this doesn't seem like a temporary move. Guessing this is one of a few levers FHFA is going to pull to increase rev and be able to demonstrate a higher ROE on the high capital level they will have the companies raise over next year.

Interview with Craig Phillips today: https://housingfinancestrategies.com/our-follow-up-with-craig-phillips/ Guessing that is where you got that from @investorG?

I know it is not fully comparable given the type of security, pricing, etc. However, tough to hear all the conversation last year about how the size of the potential raise would be tough and then see Boeing raise $25B in bonds. A lot of differences of course, but nonetheless makes one feel a bit frustrated about how slow Admin has moved with this.

Given how he has consistently missed his own timelines, I don't doubt it will be later. I will note that the piece says: "in an interview during a visit to the National Association of Home Builders annual trade show in January". So clearly his mos recent comments are more timely. Hopefully, it happens within the next month, if not the next two, but I won't hold my breath...

I can understand the frustration given the public comments from the admin you site. Having said that, there has defiantly been tangible progress over the last year to start moving the ball forward, both on the legal and admin front. While no doubt slower than we would all like, there for sure has been progress: published plan, more capital retention, hired FA, and new capital rule (hopefully by end of next month. All to say, tangible steps, and no longer just “talk”.

I also find it a bit odd given how Calabria has been talking for weeks now - hinting that there will be tweaks rather than a full new rule. In my mind, this would make sense if they had already selected an advisor. One could then imply that they were told that it needs to be lower in order to get this thing done. @cherzeca has discussed this a bit. Perhaps it is wishful thinking to think that this process has been completed but not yet announced, and FHFA was told to bring down the capital level?

My guess is that the market is taking the capital rule reproposal as a negative, assuming it will be a higher amount, and or will delay the process for release. Edit: it also creates more general uncertainty, which the market obviously hates.

do you have links to Calabria's latest, Midas? seems to me the market is driving the pathway, so of course calabria has to be open to that. cant go to consent decree phase until at least some capital is raised in market I think @midas79 is referring to this: “Maybe they’ll exit around 2022, 2023, that time frame," Calabria said today re Fannie/Freddie exit from conservatorship, IPO would be in "2021, 2022." This is frustrating to hear, but I would remind everyone that the market had a big selloff in July when the Reuters article came out where Calabria said something similar - granted the Treasury report was also delayed and it was unclear if it was ever going to be released. However, since then the timeline has seemed to have been sped up. Unclear if this is another instance of underpromising or the real plan..

Not to be a debbie downer (I am bullish on preferred), but I don't think his reported price is so meaningful since it is unclear what his assumptions are and the time frame he sees. As we continue to move down the road of R&R it is clear that the range of outcomes is beginning to narrow, however, without capital rule, other FHFA adjustments to F&F's business, settlement, and understanding of TRSY plan on Warrants, IMO we still have a pretty wide band of potential outcomes on what to value common.

I know this has been discussed quite extensively here and on Tim Howard's blog, but since we seem to be just a couple of weeks away at this stage, I wonder what others' current thinking is about the risk of Calabria repurposing a higher capital level vs. what Watt already put out. I have become increasingly concerned given his constant drumbeat for "leveling the playing field" and "bank-like capital" etc., and potentially repurposing, combined with the fact that there is not an advisor fully on board yet to temper his misguided thinking - that we get something with a 4 handle on it. Curious what others think. Thanks in advance.

agreed on potential small discount. my mistake, didn't proof read closely enough!

To add to @cherzeca's point, while it is important to figure out what the price of the stock is implying as the eventual outcome, I think it is also important - especially in an event-driven investment like this - to also think about what would need to occur for the market to change its assessment. Said another way, what would need to happen for the market to agree that this is worth around par? Given the en banc hearing, capital retention agreement, etc. this is something I have been thinking quite a bit about - what convinces the market to agree with me? While selecting an IBank, and final capital rule will be constructive in terms of moving the narrative along of the recap and also helping to value the equity, IMO we don't get to par until it is clear that there is a 4th Amendment/settlement. So I think, if you are owning the preferred today you believe that settlement will be done at par or close to it and in a reasonable time frame and if you are selling/agreeing with the current market price you think there are too many risks that it doesn't happen or that the preferred get materially less than par.

I tend to agree with this thinking. Two thoughts: 1. It is possible that after the Treasury plan took much longer to come out than initially indicated, Calabria is taking the conservative approach on timelines. 2. Playing devil's advocate - assuming that this is in fact the "planned" timeline, perhaps the thinking is that they want to be able to say that the companies will have met full capital requirements and be released following the IPO. So if you are a new investor putting money in you know that once raise is finished conservatorship will be over. The 6-12 month period seems excessive. It's even worse when you consider that Calabria pegged the IPO date at Q4 2020 or Q1 2021. Pushing things out that far is really risky. It's not like investors need some sort of track record of earnings. They know exactly what they are getting. 6 months of retained earnings could be Q2 and Q3 2019, putting a Q1 2020 IPO in play, if not for the Q4 2020/Q1 2021 comment. Election season is going to take more and more of Trump's attention as 2020 goes on. I bet he wants this done ASAP. If investors are willing to put in $100B after 12 months of retained earnings, why would they not be willing to put in that same money in Q1 2020?

While I don't think it is a great idea to rely on "smart" money. I think, in an instance like this, if one is aligned with very large sophisticated investors with deep pockets, it provides some peace of mind that we are not going to get "screwed". I know some have talked about the risk of preferential settlement treatment for the large institutional holders of preferred vs. the small guy. I think it is important to keep in mind that the optics of this would be horrific for Treasury, and based on how this has been playing out, it is clear that Mnuchin and co are mindful of the optics. Hence giving congress as many opportunities as possible, and the need for, potentially, excessively capitalized companies.

@chereza - I agree with you. I think once NWS is ended the train will have left the station, so to speak. But again, to my earlier point, as long as these moves start happening in the next few months, I think the market will be proven wrong. As investors, I think we could care less when they are "offically" released from conservatorship. It is the clear actions that move it in that direction an enable us to put a value on a future stream of earnings.

While most on this board have actually read the full report (and provided terrific thoughts and insight - thanks!) and also have the context of the past and recent history, I think it is important to take a step back. This is probably the first time in years that anything related to GSEs has received such wide media coverage. If you are an investor and seeing the headlines for the first time in a while your impression is that this is basically more of the same and if it happens (or as Bloomberg and other's are saying it won't if Trump loses) we are still years out. If you are a holder today, like many on this board I believe are, we are betting that today's perception of a recap (if it happens) is moving forward ASAP and is not years out, which is what the market seems to think (basically market is wrong in its view about timing of recap and risk of it not fully happening).

@investorG I don't completely disagree with you. In my view, it is less the plan, and more what the plan signifies in terms of getting the ball moving on all those pieces. This is hard because there has been so much talk (aka noise) to date, but not much in terms of concrete action. In my view, I am thinking/hoping that the plan enables some of the real actions to happen quickly, but I think you are right to urge caution.

Unclear if WSJ is also confirming this, or just going off of Gas' comments... "Trump administration officials are finalizing a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership — couple be released in the next few weeks." more on this NOW with @LizClaman as @USTreasury eyes Sept-Oct time frame to release long-awaited memo on reforming GSEs. @WhiteHouse will provide comments in coming days before Treasury finalizes $FNMA $FMCC Treasury had no comment on matter

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon. SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

https://perspectives.agf.com/a-government-in-paralysis/ "Two of the remaining heavyweights in the Cabinet — Mike Pompeo and Stephen Mnuchin — are thinking of leaving this fall. Pompeo knows that ISIS and the Taliban haven’t been defeated, yet the president wants to disengage. Mnuchin is exasperated on trade, and both are grappling with enormous unfilled vacancies." Where'd you hear that? Thanks in advance.

Read earlier this morning that there are rumblings that Mnuchin is thinking of leaving this fall because he is "exasperated on trade". This seems like a real risk IMO since it would most likely serve to dramatically elongate the R&R process, especially if the end to NWS has not been negotiated and announced - new TRSY Sec. would have to get up to speed and might have a very different view than Mnuchin. Anyone with a different view?

@luke, where did you see/hear that? Would be curious to hear his thinking.

@luke, Thanks for posting @chereza, not that I put much weight in Bove's opinion, but given the dearth of coverage from the street, I think it is useful to read his comments, since he gets interviewed and is written about, etc. I am looking forward to the point where the bulge brackets again begin recovering both companies.

Is anyone able to get a hold of his note? https://seekingalpha.com/news/3477443-fannie-freddie-swoon-massively-diluted-note-bove