SnarkyPuppy

Did any news come out in the last 30 min?

I just rewatched the video - this was 100% a premeditated written answer as he peaks down at a piece of paper every 4-5 seconds during his entire response

Kind of agree, but could be psychological bias impacting what he was actually saying

Kind of amazing it hasn't come up once in 2+ hours

How long have these been running?

What just happened LOL

Tomorrow should be fun

Did you mean shareholders getting screwed depending on whether they supported a Bloomberg presidential run as Ackman did or they supported Trump right after winning the presidential nomination as John Paulson did? Not that particularly. Just that the only way shareholders get unfair treatment is between different slices of the capital structure, not within the same - i.e. all FNMAS shareholders will be treated the same, but FNMA and FNMAS are fundamentally different claims and thus will be treated differently. They are discussing the risk of a settlement between Fairholme, Paulson, and US Govt to end the related litigation. In practice I'm not sure how probable this is

His question is very reasonable.

I understand the premise- just not sure a deal would be done while fairholme holds public shares.

In all practicality wouldn't fairholme need to liquidate their positions prior to any settlement disadvantageous to shareholders not involved in the litigation? I do think it's a key risk, and I think Berkowitz may be willing to do something like this given the Sears debacle, but significant liquidations would probably become obvious to the public ahead of an announcement?

Too much career risk all around. Even bringing up the GSE investment usually incites laughter

Purely speculating- I think Carney's move to Breitbart could be a way for him to distance himself from WSJ/negative GSE views IF his writing on the GSE's was the result of orders from the top

Semi interesting - dimon was asked directly about the GSEs. Can anyone glean what he is implying here? http://video.foxbusiness.com/v/5276683740001/?#sp=show-clips

https://www.bloomberg.com/news/articles/2017-01-10/breitbart-hires-wall-street-journal-vet-to-expand-its-audience "In a bid to expand its influence in the era of Donald Trump, Breitbart News, the crusading populist-right website that was an early champion of the incoming president, has hired veteran financial journalist John Carney of The Wall Street Journal to lead a new finance and economics section set to launch soon after the Jan. 20th presidential inauguration"

Could be as early as next Friday or following week. Here's a link to check: https://www.senate.gov/committees/committee_hearings.htm Thank you!

Does anyone have any insight as to when the Mnuchin confirmation hearings are likely to occur?

When warrants are exercised, the strike price is effectively a payment to the company. So $4 per share of government warrant would flow through to the GSE's which would contribute to their equity capital, and then the government can go ahead and do whatever they want with their now outstanding warrants which will be valued > $4 per share.

To be blunt, I have concerns about the commons because of the different unknown variables above, but I'm failing to recognize any situation which has a >20% of occurring where the preferreds can lose...?

Can we try to think through all of the downside scenarios for the preferreds? I'll start but it might be a useful exercise for the much brighter people on this board to collaborate and try to think through likelihood of each? Risk #1: Recapitalization via net income->retained earnings. This likely will take 7-10 years (triangulating a few sources here). Likelihood+Rationale: Low. The risk of under capitalization is inconsistent with Mnuchin's public statement ("we'll be sure they are safe") and this would hurt the hedge funds he's close to. This would mean a settlement didn't take place and the litigation would provide MOS. Risk #2: GSE's unwound; litigation losses. Likelihood+Rationale: Seems very low at this point once again due to Mnuchin's involvement + would mean a settlement didn't occur and litigation would provide MOS. Is there any other possible downside scenario here that I'm missing that's in the remote realm of likelihood? While the upside to the commons may in the end be more favorable, there just doesn't seem to be any "likely" downside for the preferreds making them a much stronger expected value position? It seems very likely at this point that some combination of the following will occur: a) eliminating govt preferreds (excess nws payments) b) increasing govt warrant strike (done at current FNMA price of $4 would be about $20bn capital to FNMA) c) converting preferreds at par ala citigroup (this would be $19bn for FNMA) d) a phase in retained earnings recap period (say 3 years of net income at $10bn per year = $30bn) e) some form of rights offering to account for any additional required capital (higher capital ratio agreed, lower govt warrant strike, some remaining senior pref stock that needs to be repaid) which would dilute the common to an unknown extent, but would not hurt the preferreds) The above would give FNMA $69bn which would be 2.1% of assets. Seems reasonable, rationale, win/win/win scenario and something that could be completed quickly.

Not that I know of. It's really a shame- in an ideal world you'd make an Ericopoly trade here by buying long dated options concentrated in FNMA and shorting related exposure

Assuming he just doesn't respond?

My current position is allocated about 80% preferreds / 20% commons for optionality purposes. I've been torn about selling the commons. I just don't see many likely+favorable scenarios where the commons are not heavily diluted. The one pragmatic scenario, where the Treasury increases its strike price to effectively recap the companies, does not seem likely given Mnuchin's comments around exiting government ownership.

Another interesting note with respect to capital, seems that the proposed reduction in corporate taxes would have a significant impact (negative) on the GSE's deferred tax asset balances...

Serious question- has anyone looked into how much stock comp Tim Howard has outstanding? He obviously makes very strong points but it's always good to know the incentives behind people you're listening to... Edit: meh- didn't realize he departed in 2004, so probably difficult to say how much of a bag he was holding in ~09