Jcmeg35
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Posts posted by Jcmeg35
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To throw another hat in the ring, I have felt the positive narrative has slowed the last couple of weeks. With fewer Public appearances and statements by Calabria, and reporting and rumors that indicate something may have changed/momentum has slowed. This is obviously a very tenuous process with a lot of obstacles, and entrenched interest that make it practically and politically tough to get done.
While the ABS article seemed to be bullish, there has been more bearish anecdotes and seeming delays in timeline of late that, I think definitely warrants concern.
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the pivot point in this capital raise will be what capital level will fhfa set. a high level means that investors will want a low re-IPO price, meaning treasury proceeds go down. fhfa has no skin in the game, whereas treasury has all of the skin the game.
Watch out for the possibility of Treasury selling the warrants back to FnF for a fixed amount, then. If that happens then their incentive to push for lower capital levels, and thus a higher share price, disappears.
@Midas, this is an interesting thought and would make it much easier for Treasury to quickly "get out" of its position. The one pushback I would have is how would FnF buyback the warrant position pre cap raise? I would think, this would only be able to take place after FnF had been fully recapped and then + some, which would have to be many years down the road. As @chereza mentions, would still require lower capital levels for Treasury to realize max value, otherwise, once we got to that point, the warrants would have a lower value.
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@J35
you have 2 difficult claims, APA and separation of powers, and with both the merits and remedy of each claim to decide, it is like 4 claims. you know you will have a dissent on each claim. so you have a lot of opinion writing to do, and responses to the other side once the original draft of each opinion is handed over to the other side. plus you have 16 judges so you may have some concurring opinions. plus you are likely to have some negotistions cum arm twisting
so this will take awhile quite apart from the political aspect you mention. a settlement that would preempt the need for publishing the opinions seems well down the road imo, but some (in the minority) judges in the process may have that as a tactic. I tend to doubt it
@chereza - thanks for the color. That all makes sense. I guess it was a little naive to think they could kick the can but then wake up one day to see that Admin didn't follow through etc.
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A question for Chris. I was puzzled by this table here:
It almost looks like 50-50 to me for affirm/reverse decisions.
Didn't we say it was 14 reversals out of 16 before? :o
13/16 reversals of merits panel appellate decision. I guess this tweeter went to rev/aff of original district court decisions.
Got it. Thank you.
Still, the timeline in this tweet is quite interesting. The longest so far is 244 days. Given the complexity of this case, I'd assume it takes that long, which puts us to October ruling.
Given Calabria's public comments, does anyone else think that the Court is going to hold off as long as possible in issuing a ruling to see if the matter will settle itself with an Admin change to the NWS? I guess the question is if one thinks the mindset of the Judges is to kick the can down the road and see if the case settles itself. Does anyone else have a different view?
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Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)
Thanks Luke.
"And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital."
This caught my eye, in an unpleasant way. Hopefully, I am not reading too much into it, but starting to build capital next year (I have to think this means retained earnings not just capital raising) is a longer an more opaque timeline than what he has previously said. Not very reassuring.
Edit: @luke Looks like you had the same reaction.
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Another article from WSJ. Not much added here...it is interesting though that he cites common shares and not preferred as indicating "the end of NWS being priced in", IMO just highlights the lack of knowledge on the GSEs.
https://www.wsj.com/articles/sound-and-fury-over-fannie-mae-and-freddie-mac-11560359890
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Amazing how clueless some people are
This is a bit more on the "analysts" take: https://www.bloomberg.com/news/articles/2019-06-06/any-fannie-freddie-ipo-would-be-years-off-raymond-james-says
Agree @allnatural, he seems pretty out to lunch
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Has anyone read this or seen any other coverage about it?
"@POLITICOPro
Jun 3
FHFA director to seek more powers from Congress this month. @KatyODonnell_ has more http://bit.ly/2Wlupid"
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Looks like the WSJ article was updated with more content...
Excerpt:
“People familiar with the Treasury document cautioned it would likely include substantial changes to the business models of the companies, including steps to reduce over time their footprints in housing finance.
Those steps, which could include limits on the types of loans Fannie and Freddie may purchase, could reduce their capital needs and avoid a return to the pre-crisis landscape. But such constraints could turn off potential investors in their shares.”
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hot off the wsj press:
WASHINGTON—Trump administration officials are putting the finishing touches on a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private-shareholder ownership, people familiar with the matter said.
The proposal, coming more than a decade after the government seized the firms to save them from collapse, would seek to put the companies on sounder financial footing and then release them from government control, if Congress doesn’t enact a more fundamental overhaul, these people said.
The plan is being developed by the Treasury Department in consultation with a regulator of the companies, the Federal Housing Finance Agency. It could change as it advances through the Trump administration, works its way through the White House and ultimately is submitted to the president for his approval as early as June, the people said.
The proposal is expected to include a version of what has been called “recap and release,” which would ensure the firms have adequate capital to absorb loan losses in a future housing slump and thus avoid needing another taxpayer-backed bailout.
If carried out, the companies could return to a status similar to how they operated prior to the financial crisis. Administration officials would like Congress to act on a more sweeping remake of housing finance.
Former officials of the companies and housing experts say the moves could be daunting. Shoring up Fannie and Freddie’s finances could entail raising more than $125 billion for the firms, the companies’ regulator has estimated—in part by selling new shares in an initial public offering. In comparison, the largest initial public stock offering ever was $25 billion for Alibaba Group Holding in 2014.
Fannie and Freddie are central players in the mortgage market, buying mortgages from lenders and packaging them for issuance as securities.
The companies got into trouble before the crisis by taking on more risk without having to hold more capital. They amassed huge investment portfolios to profit from the difference between their lower cost of capital—a benefit of an implied federal guarantee because Congress created the firms—and the rates they could earn on mortgages.
The government seized the companies through a process known as conservatorship in 2008, during the George W. Bush administration, and agreed to inject vast sums to support some $5 trillion in debt securities issued by the companies.
As part of the draft plan to return the companies to private hands, an existing Treasury backstop for the companies could remain in place. But the firms could begin paying a periodic “commitment” fee for the federal guarantee, the people said.
@chereza - was just about to post myself.
While most of this is regurgitating what we already know. I found the "entail raising more than $125 Million" & "As part of the draft plan to return the companies to private hands, an existing Treasury backstop for the companies could remain in place. But the firms could begin paying a periodic “commitment” fee for the federal guarantee, the people said." very interesting new tidbits that I am sure are intentionally being floated by Admin now.
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SCOOP: Trump Admin creates timetable to release @FannieMae @FreddieMac from government control; @MarkCalabria seeking reform agreement w Treasury summer's end cease “net-worth sweep” by year's end, poss recap thru massive public offering in 2020 more NOW @FoxBusiness $FNMA $FMCC
How is this a "SCOOP"? This has all previously been publicly stated by Calabria.
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Seems pretty clear to me that Calabria, Mnuchin, Phillips have a plan in place that they want to execute on and are methodically letting out information in a continued stream. Each time one of them speaks they disclose a new tidbit of the plan, or expand on what has been said previously. While it is never a good idea to get too excited, each subsequent appearance/interview has info that overall is positive for preferred shareholders.
"Junior preferred conversion"
It's moelis isn't it. I mean it is though, isn't it.
[/quote
If Calabria is talking to a reporter about par v conversion to common you know that is being discussed behind the scenes.
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Some good sharp questions from Katy O'Donnell in this interview, IMO. Calabria doesn't provide any new info on some of the good ones. To @chereza's past comments, probably for the best that he gives non-answers on these tougher ones right now. Again, comforting to see that competition has to come as a result of legislation.
https://www.politico.com/story/2019/05/17/fhfa-director-mark-calabria-1453740
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Overall, I also agree that the biggest takeaway is that Congress is unlikely to act.
I also think that @hardincap and the market's reactions are justified because it highlights the numerous moving parts, number of constituents involved, and how complicated this process is. I think part of the problem is that Calabria & co. have just started the narration process about how they plan to act. I think as we move down the road with TSY response to WH and more details emerge Mnuchin, Calabria, etc. will move into "pitch". I think at that stage, once the wheels are fully in motion, they will discuss how congress etc. are not material risks to investors. This is all to say, I think this will all emerge in time.
I also think it is important to keep in mind that while all the talk has been positive, at this stage, there have been no concrete actions that have been taken. I think this is also why Calabria's Fox interview, despite saying some pretty constructive things on IPO, ending NWS, his mandate to R&R, etc. didn't move the price up that much.
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I fully agree. However, I think there are still a lot of risks that remain that could gum up/halt the process. While many of the risks have diminished there are still a bunch that exist.
Uncertainty != Risk
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To tag onto @SnarkyPuppy's comments, it is great to see the goal posts for the downside scenario slowly moving forward. Going back in time the need was for a court decision to be the catalyst for commencing recap. Even more recently during the Calabria confirmation process, there was a concern from some that receivership might be a legitimate path that Calabria would want to pursue. While a lot of uncertainty and risk still remains, it seems the probability of the downside scenarios continues to be diminished.
The conversation has shifted from court outcomes/and eliminating the entities to the timing of release and what eventual capital levels of the entities will be. Even super high capital levels are much better "downside" scenarios compared to where we were a few months ago.
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@BTShine, thanks for posting
Two important comments that Calabria made that were not tweeted out:
1. Treasury will lead the Recap - not surprising but broadly positive.
2. Capital levels of 4-5%...this is substantially higher than previous comments and FHFA's initial proposal - obviously a negative. Hard to see how investors would be willing to pony that much $$ when it would weigh on ROE and could be further dampened down the line by competition.
"@MarkCalabria is waiting on a plan from @USTreasury on reform for Fannie & Freddie, which he expects this summer. (one of two)"
Entire tweets and replies compiled here, or should I say his stated timeline of activity as per the reporter (video of interview awaited):
https://twitter.com/Jenniferisms/with_replies
Video is live now:
https://video.foxbusiness.com/v/6035185923001/#sp=show-clips
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For those that have not seen it:
I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?
Excerpt:
"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation
“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"
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what time is hearing today?
Starts at 10AM EST, I believe. Posted link to live stream yesterday, but here it is again:
https://www.banking.senate.gov/hearings/02/07/2019/nomination-hearing
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https://www.banking.senate.gov/imo/media/doc/Calabria%20Testimony%202-14-19.pdf
"I have even brought with me today my nearly decade old, dog-eared personal copy of HERA. Whatever the policy issue, my first question will always be “what does the statute say?"
Also for those interested, link to live stream for tomorrow:
https://www.banking.senate.gov/hearings/02/07/2019/nomination-hearing
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Thoughts from Tim Mayopoulos on GSE reform:
https://www.cnbc.com/video/2019/02/04/former-fannie-mae-ceo-on-the-fate-of-fannie-and-freddie.html
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Later today:
http://www.ca5.uscourts.gov/oral-argument-information/oral-argument-recordings
Case Nbr 17-20364
Oral arguments up: http://www.ca5.uscourts.gov/OralArgRecordings/17/17-20364_1-23-2019.mp3
having trouble streaming the mp3. anyone else?
Me too. Got to the 33min mark and it got cut off. Now not reloading...Did anyone download it?
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Anyone have a good reason why Otting come out now before Calabria's confirmation? It will create a difficult session later on for him during Q&A.
fair point. however, I think castigating Calabria for something otting does is somewhat irrational...not that the senate wouldn't do that
@cherzeca, I would agree, however, I think it is more about giving the Senate an opportunity to ask questions about Calabria's position on these moves and how he plans to proceed if confirmed. Probably would create a lot more headache for him if 4th amendment & recap plan are announced by Otting which Senate comes out against because they feel like they are not part of the convo. If a majority is against it and Calabria is for, would it jeopardize his nomination?
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I think it is important to be continuously mindful of opposing viewpoints that disprove the R&R thesis. I would be curious to hear others thoughts' on these positions. I view the majority of them as the prevailing narrative/view that the sell side community has maintained over the last several years (in addition to the MSM & Bloomberg's Anti-GSE leaning).
The one that I find perhaps most compelling is how an announcement of a plan to end NWS, pre-Calabria confirmation, could impact/scuttle his nomination - which might have the impact to push out any major announcements/changes until after he is confirmed.
Also, while I personally think "this time is different", we are still in the early phase where it is still talk, nothing has been firmly announced or implemented, and we could have a repeat of Mnuchin early 17'.
FNMA and FMCC preferreds. In search of the elusive 10 bagger.
in General Discussion
Posted
Clear FUD. The person they quote doesn't say he heard that this was the plan or anything close to it. I guess can't expect much during this news lul and perceived delay in the release of the plan...