investorG

Honoring the par value. I think plaintiffs would agree in a heartbeat to par and nothing more. But if they win en banc they'd likely require more than par. how would they come up with $33bn for a par payment? I doubt the govt is fronting that and FnF need more capital not less. and hume doesn't want conversion.

perhaps he was simply standing up for his common shareholder clients to prevent excessive dilution. but when he says the contractual rights of the preferred shares should be respected (but not favored over common shares), what specifically is he referring to? if it's not conversion, then either dividends or some other agreement?

yes, material delay. it's why the pref shares are down 20pct in a week. the Bloomberg article on friday had some level of accuracy. things can change as we've learned. Calabria gave hope for the 1h2020 IPO with his earlier statements and now he has been neutered for some reason. mnuchin can't or doesn't want to deliver. who wants to buy shares in a company in 2020 that's going to remain in conservatorship for years -- only private equity or buffet perhaps and they would demand flesh. I have no idea on Collins except there's a good chance it's a close call. the Tsy plan and capital standards, if they are ever released, are not likely to be major positive catalysts on their own. we were in an uptrend from 5 to 14 for seven months. now we're just over 1 month into a downtrend and there's a decent chance it continues for some period.

muscleman received some rude commentary on this board, he's due his victory lap imo so long as it stays respectable.

We could see a trading bottom today. there's no urgency to buy and plenty of people urgently want out.

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out. good luck, everyone.

imo for prefs the timing of exit is less important than canceling the NWS. besides calabria has repeatedly said his job is to set mileposts toward building capital and its up to the companies to get there. and it seems right to me to set expectations for a base case on a very complicated process do you mean canceling the nws, or, canceling the nws and making the sr pref go away?

what's the value of a 5 year $25 par value security discounted back for both time value and material event risk? below current prices I assume.

settle lawsuits?

Meaning Hume's concerned that would be unfavorably good treatment for prefs over common? "The contractual and legal rights of all shareholders should be left in place and respected equally. Anything else will be seen as playing favorites to Wall Street hedge funds that have invested disproportionately in the junior preferred stock. The contractual rights of those shares should be respected, but not favored over those of common shareholders." https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights perhaps he got wind of a long capital build with no jr pref conversion and wants the jr pref dividends turned on? on the one hand, it makes no sense to pay out $2-2.5bn of annual dividends during a big capital build (33bn x 7%). on the other hand, it could possibly help resolve other areas.

for jps, perhaps it likely depends -- among other things -- on if they convert into common at some point and/or turn on dividends before exiting conservatorship. could be v good or v bad depending on the details. would be about a little over $2bn annually to turn the dividends back on. maybe this explains the Hamish hume article a little.

the quote might have been edited because it doesn't make sense. it's tough to 'get them out of conservatorship' before capital is raised and capital likely can't get raised if the lawsuits are outstanding.

hey cherzeca, would you mind if I had a few questions, do we know what judges actually sat for the collins en banc? All 16 regulars? In the other en banc case it appears they added a 17th, one of the senior judges - is that to make a tie less likely, and is typical? finally, can a judge abstain or do they have to pick a side? thank you.

luke, how do you explain the continued delays and reneging of previously committed timelines and positions (collins about-face)? hardincap, have you ever canceled (partially or fully) a ~$200bn asset of the US govt? it might not be so easy. If that was your intention, which appears necessary for them to exit conservatorship, and ~15 judges were about to issue a ruling that may or may not do it for you -- wouldn't you buy some time by contacting your favorite Bloomberg reporter? imo the main deadline is next may. after that, a re-IPO is unlikely with the summer and election. whether the Tsy report comes out to the public in june, july or September of 2019 isn't likely crucial. There's a real chance Mnuchin has kept a professional distance between watt, otting, and Calabria while they are FHFA director (not before). There's some chance Otting acted on his own regarding the constitutional decision. And it made good sense for Calabria to try to protect his job in 2021 if Trump loses by reversing Otting's move.

I certainly am not privy to what the leaders are thinking -- and its reasonable to not want to address this complex task -- but this article's message is not inconsistent with a team who is waiting on a Collins verdict and is attempting to buy time.

The Hamish hume letter regarding conversion is surprising to me. maybe he wants them to turn back on dividends and certain preferred classes could possibly trade > par? or is he mainly concerned about new lawsuits from common holders slowing down the whole process if they get diluted too much?

the meat of Collins is in the APA claim IMO. it's cleaner and more direct. In addition, Calabria's change is an attempt to protect his job for a full term which makes sense. the pending Collins verdict is huge. a loss, and we're at the mercy of the govt, price targets and goals will likely be cut for both preferred and common. a win, and we have a real seat in negotiations. guessing here, but that's likely why things are stalled, everyone is waiting for this. I'm nervous for the outcome. Good luck, everyone.

Crapo, Calabria, and the banks would like additional competitors and explicit guarantee. Brown appears to favor the utility. And this is before getting Maxine involved. I'm guessing additional competitors and the utility model plans would be difficult to implement together? And also guessing that Brown wouldn't give Crapo both things he wants for free. So, is it possible to go both utility and explicit guarantee to give each side one piece of what they want?

this delay reinforces the likelihood that initial investor feedback after Calabria's May excitement directed them to give congress a real shot. without congress, there is higher deal execution risk and/or the new investors would conceivably demand such a margin of safety in terms of pro forma % ownership that the govt and private investors get squeezed. with congress, the deal might flow easier (depending on what they pass) and allow for greater potential returns for the govt's warrants. so, it appears they will try congress. and give them at least the rest of the year to do so. if that doesn't work, then I guess plan B. personally, I am disappointed that they can't do them both in parallel - stop the sweep, switch to the periodic commitment fee, and at the same time prioritize congress. (but I've thought this for a long time and it's just not happening). good luck, everyone.

good post, thanks. mnuchin is likely concerned with 2 things more than Tsy's $$ take: a) try not to disrupt the agency mbs market for global investors. this seemingly requires either an explicit (congress) or implicit (ongoing committment fee) backstop, preferably the former. b) minimize failed deal risk in a potential transaction(s). ~$100bn is a lot to raise. congressional blessing would help, hence the delicate dance that's going on now. I guess it's well orchestrated with calabria as the main public face given his skills, time, and relative lack of relationship baggage. even if the congressional route goes nowhere, it provides some political cover.

the securities closed at / near 52 week highs on Friday. my guess is this is likely the start of a consolidation period. the Tsy report will likely be balanced at best for shareholders because there is still a deference to congress (semi-permanence) and their likely preference to thread a needle to achieve their objectives and not irritate various constituencies.

even if his analysis is off base, his conclusion on timing might not be, unfortunately. after reading tim rood's twitter commentary yesterday about involving congress, I'm guessing the early feedback from investors is that raising ~$100bn+ is going to be harder than some expected without a congressional foundation. In theory this issue could be somewhat addressed if FnF exit conservatorship in advance or in conjunction with the first potential large capital raise, but I'm not sure if this is logistically possible. disagree. assuming that treasury sometime this month issues a plan that calls for a recap and release of GSEs, then it will be done...painfully, with great difficulty, probably at lower issue price than moelis blueprint assumes etc, but it will begin once FHFA sets capital target. now when it ends I wouldn't care to predict, but it will start with deliberate speed, assuming treasury issues the plan that I think it will, and Calabria starts working and stops talking EDIT: there is inertia to overcome and many investors will have doubts. but once the ball starts rolling, there will be increasing momentum, not least of which is massive fees for Wall Street. from start to finish, this will be a deal of the decade for Wall Street, and assuming we don't go into a recession and that stock market doesn't tank, this will get done the main risk, imo, is that multiple capital raises would be needed. that means the first tranche of investors are exposed to what you describe - an economic or market shock that could derail the completion of the project and leave them in conservatorship much longer than planned. thus, the first new investors would require imo a deal they couldn't refuse, which possibly means either a very low investment price and/or the gov't giving up both the sr pref and perhaps a good bit of option value. it would be easier if the capital requirement was say 50bn in total and in theory they could get out of conservatorship soon after the first and only equity raise. I doubt new investors prefer to wait 2 years to exit conservatorship. So I discount the retained earnings you mentioned. I'd guess $100-$125bn needs to be raised over 1 year in two or (more likely) three deals. pure guess though. the best way would be a validating private equity taking down half and then a re-IPO / exit from conservatorship several months later. back to my original point, it'd be much easier to convince the early new $ to participate if congress blessed the plan in some form. whether that's possible, my guess is we'll see at some point bc it's likely going to be tried to reduce odds of a failed deal.

even if his analysis is off base, his conclusion on timing might not be, unfortunately. after reading tim rood's twitter commentary yesterday about involving congress, I'm guessing the early feedback from investors is that raising ~$100bn+ is going to be harder than some expected without a congressional foundation. In theory this issue could be somewhat addressed if FnF exit conservatorship in advance or in conjunction with the first potential large capital raise, but I'm not sure if this is logistically possible. disagree. assuming that treasury sometime this month issues a plan that calls for a recap and release of GSEs, then it will be done...painfully, with great difficulty, probably at lower issue price than moelis blueprint assumes etc, but it will begin once FHFA sets capital target. now when it ends I wouldn't care to predict, but it will start with deliberate speed, assuming treasury issues the plan that I think it will, and Calabria starts working and stops talking EDIT: there is inertia to overcome and many investors will have doubts. but once the ball starts rolling, there will be increasing momentum, not least of which is massive fees for Wall Street. from start to finish, this will be a deal of the decade for Wall Street, and assuming we don't go into a recession and that stock market doesn't tank, this will get done the main risk, imo, is that multiple capital raises would be needed. that means the first tranche of investors are exposed to what you describe - an economic or market shock that could derail the completion of the project and leave them in conservatorship much longer than planned. thus, the first new investors would require imo a deal they couldn't refuse, which possibly means either a very low investment price and/or the gov't giving up both the sr pref and perhaps a good bit of option value. it would be easier if the capital requirement was say 50bn in total and in theory they could get out of conservatorship soon after the first and only equity raise.

even if his analysis is off base, his conclusion on timing might not be, unfortunately. after reading tim rood's twitter commentary yesterday about involving congress, I'm guessing the early feedback from investors is that raising ~$100bn+ is going to be harder than some expected without a congressional foundation. In theory this issue could be somewhat addressed if FnF exit conservatorship in advance or in conjunction with the first potential large capital raise, but I'm not sure if this is logistically possible.

Your right who says its moelis? You reference it in a previous reply to Midas. ;)But every common shareholder is wringing that report in their hands and the vast majority of the reason why many have invested. 2nd most argued reason is treasury maximizing their return. I can tell you right now treasury without a doubt will maximize their return and I bet it will fundamentally come separate from the legacy common holder. As a result its not treasury vs prfd but prfd vs common in a conversion scenario and at the bargaining table. A nice sweetener for a prfd conversion would be a favorable conversion ratio and warrant with a lower strike price of common. I'm guessing at this point that Tsy values getting their plan completed > maximizing their return. while Tsy might attempt to do both, one way to increase odds of a potential deal getting done is to give new shareholders a larger portion of the pro forma market cap, perhaps at the expense of Tsy's share (warrants). after already making > $100bn, is it absolutely crucial to the decision makers whether the Tsy makes another $70 vs $40bn in a potential deal? Then why are they happy to sweep 2-3B a quarter while they "formulate a plan"? I think Calabria already told us -- for some reason he only wants to potentially adjust the agreement with Tsy one time and that time is not now.