investorG

it seems the backward relief question was remanded. long time, not resolved before the election. edit. the vote to remand for more proceedings to determine any potential backward relief was 7-2.

The political tables have turned. Rather than avoiding pitfalls, Trump needs to swing for victories. Monetizing the warrants up front for $25-$40bn in a transaction -- along side a large private investment / Collins settlement / 4th amendment -- in advance of the election is advisable. That money could be targeted for popular non partisan projects at a convenient time.

I wonder if the rule of law guy would still predict retro relief with roberts or breyer the likely author of the Seila ruling. I'm also surprised FNMAS didn't rally to around $10 after the quick and potentially impactful hiring of MS and JP. Maybe someone knows something bearish that's not visible to us.

Thanks. Let's say Seila rules that CFPB head can be fired by the prez and that Calabria fights that by suggesting FHFA is different than CFPB. If Biden tries to fire Calabria in January who gets the benefit of the doubt -- Calabria gets to stay until it's resolved in the courts or Calabria has to leave and can come back if he wins in court? status quo until court says otherwise. of course Calabria might need to hire a bodyguard I would think so.... But when Trump fired the CFPB director, she refused to leave, but left later anyway. https://en.wikipedia.org/wiki/English_v._Trump Why wouldn't the same happen to Calabria if Biden comes to power? muscleman, despite the optimism on this board, FA hires, sell side pumping, we're around 25% of par for most series. Any levels you are watching on the upside or downside TA - wise? Your call on the 2019 top is becoming more legendary.

Thanks. Let's say Seila rules that CFPB head can be fired by the prez and that Calabria fights that by suggesting FHFA is different than CFPB. If Biden tries to fire Calabria in January who gets the benefit of the doubt -- Calabria gets to stay until it's resolved in the courts or Calabria has to leave and can come back if he wins in court?

there is a possible timing issue "(2) If Seila rules CFPB unconstitutional, then FHFA unconstitutional as well, and CFPB/FHFA directors can be fired at will." well, as a legal matter if CFPB director can be fired at will, so can FHFA director...but suppose calabria fights the application of Seila to Collins tooth and nail? he will lose...but maybe as late as a year after Seila comes down. How would this work logistically? How does the 5th circuit of appeals ruling in Collins play out, does it go back to Atlas? And finally if it was still murky in January and biden tried to fire him, would he have the leave while the courts decided Collins or would he stay in the mean time? Thanks in advance.

I didn't say I don't think g-fees will increase. I said they don't necessarily have to, depending on whether the re-IPO investors care about ROIC (return on invested capital) versus ROC (return on capital). The former will easily exceed 10%, and the latter won't dip below 10% until FnF get more than $180B in capital, which is enough to pay 20% of income as dividends. It is these investors who will determine whether or not g-fees go up and by how much. I also said that a g-fee increase could be phased in rather than occurring all up-front. Yes, you're right. I should have read your post closer.

But $175B of capital, the threshold at which dividend payments can start (without a special exception granted by FHFA), needs $17.5B of earnings to get that same 10% return. FnF's earnings are already there. All money not paid out as dividends would be retained, allowing a slow build to the top-line $243B number. So while ROC would go down if earnings stay flat and capital increases, ROIC should remain constant. Which do you think is more important to those who would participate in the re-IPO? The upshot is that I don't think g-fees will necessarily have to increase. And if they do, it wouldn't have to be all at once. For example, if FHFA wnats FnF's earnings to go up to $25B per year and a 20 bps increase is needed to get there, but FnF are given 5 years to reach full buffers, they would only need to increase the g-fees by 4 bps per year. That's much more politically palatable than a huge 20 bps increase all up front. It's nice that you don't think G-fees will increase but Calabria doesn't even believe that with a straight face based on his back and forth with senator van hollen about providing data to support his view. Citing commercial banks and jumbo loans is not applicable given apples / oranges comparison. On the plus side Calabria did comment with Senator Moran that they are open to evaluating the rule after comments. American citizens, especially those less well-off, are depending on him doing exactly that.

Correct. After the SC downsizes calabria's likely tenure via Seila there's a window in ~ August to make the appropriate move, a 4th amendment, that sets the state for a potential consent decree in the lame duck. Your guess is as good as mine if they will have the courage to right the NWS wrong.

Possible in some areas but perhaps not all areas. You (and me) are likely guessing about their ability to get them out of conservatorship irreversibly by mid jan. It's also weak that they don't have the guts to do the right thing and bravely tackle this in the open pre-election. Among others this is one reason why I expect the Dem candidate to win; the Gse's should have capital infused by now handing out refi's (from tighter spreads), mods and forbearance like candy.

Calabria can talk tough now but in reality -- and we'll know in the next 1 month and 5 months -- Zandi might very have more official impact on FnF's future than Calabria. I wonder why most politicians and reporters avoid the elephant in the room regarding Calabria's likely shortened tenure. It doesn't take a lot creativity to see how this will likely go.

Democrats are likely not eager to accept anything Calabria has to offer. He's likely fully gone in 7 months. He's screwing with ordinary citizens' lives by setting capital requirements 6x major stress test losses which will dramatically harm mortgage availability for less-advantaged Americans. It's especially tone-deaf in the current environment. I'm surprised some of the participants in the call didn't resign out of protest rather than go along with this program. What a shame, he could have been a hero.

If Seila law comes out as expected with a forward remedy to make the director removable, it's naive imo to expect a reasonable 4th amendment in a likely lame duck period in late 2020 because there's a good chance the SC will have taken up the Collins apa case from the 5th circuit with a decision possibly already pending. An appropriate course of action in that scenario would be to move quickly on a collins settlement.

Thanks. Presentation entitled either 'Tough luck if you're not wealthy' or 'How to discreetly siphon more money to the banks from wage earners'.

Calabria is attempting to fully disconnect FnF from govt and its support. If this initiative is cancelled so is incoming capital, as trust that once existed has been curbstomped for a decade+. Would you buy this shit with govt backstopping it, begging for an '08 repeat? I wouldn't. Also, I don't give a rat's ass if we only wind up owning 1% of FnF. I just want my principle returned. All of it. The required capital level should be reduced by 25-40pct from his level. The cost for an explicit backstop "should not" decrease net income by 25-40pct and it would be more airtight for global GSE debt investors. The paid-for backstop makes better sense than jacking up the capital to silly levels.

Calabria should fix his mistake asap or he should resign / get replaced. A large amount of irreparable damage has been done in terms of the ability to raise $100bn+. Even if he comes to his senses, which he may not, he's shown that a director can come in and arbitrarily dictate a ridiculous capital level with each new administration. 6x his stress losses is absurd, there should be no sugar coating it.

Calabria is a hero to his think tank buddies. Meanwhile middle class Americans must send more of their wages to mortgages (or apt landlords if they are shut out). The arbitrary and excessive buffer amount will likely turn into a political football with changes coming under every administration (assuming Seila's outcome is as expected). I can guess who Mr. Tim Howard is rooting for in 5 months. while my preference is for the trump administration to carry through on its "plan" for the next 4 years, I am beginning to see the silver lining of a Biden administration. He may have poisoned the well with capital requirements of 6x the housing bubble crisis stress test losses (2019). An arbitrary buffer amount by a single regulator is a serious economic weapon, if the SC is paying attention this could push them closer to voiding all of the CFPB/FHFA's prior actions by registering them as unconstitutional with no forward remedy of removal. If Calabria wanted to show honor he would realize his mistake quickly and publicly change course -- by mentioning that it's a negotiating starting point / high end -- rather than let this garbage stink out in public for many months.

Calabria is a hero to his think tank buddies. Meanwhile middle class Americans must send more of their wages to mortgages (or apt landlords if they are shut out). The arbitrary and excessive buffer amount will likely turn into a political football with changes coming under every administration (assuming Seila's outcome is as expected). I can guess who Mr. Tim Howard is rooting for in 5 months.

Wow, Calabria managed to upset even bank-centric Don Layton with the magnitude of his disastrous excessive capital requirements. Meanwhile, mortgage credit has tightened -- hurting Trump's re-election chances and likely his own job in 8 months. Smart guy, but he's screwing American citizens. Capital of many multiples of the stress losses = higher mortgage rates and fatter bank profits.

major political risk. mnuchin and calabria might have a plan for the next 8 months before a likely transition but it's sure not apparent to the mkt. The political punt in summer of 2019 - per bloomberg story in july - to post-election for a potential 4th amendment + capital raise was disastrous.

common has more obstacles than jr pref for imo similar upside. edit: the max public re-IPO size is probably something like $60bn. the private markets perhaps could handle more. whoever puts up that money has to deal with probably further supply for the buffer and/ or secondary sales so they are going to want something cheap. edit 2: if seila doesnt provide backward relief I don't see Tsy providing overage payments in a potential settlement unless collins wins at SC in 2021.

Footnote 63 on page 101 says "An Enterprise’s “prescribed buffer amount” means, as applicable, its PCCBA or its PLBA." The last two tables on page 10 of the fact sheet show that the PCCBA is $99B and the PLBA is $91B (both numbers are for FnF combined). That puts Table 8 into a whole new light. FnF can pay out up to 20% of its eligible retained income (page 100: "The maximum payout ratio is the percent of eligible retained income that an Enterprise can pay out in the form of distributions and discretionary bonus payments during the current calendar quarter.") when it has between 25% and 50% of those buffers above, which is roughly $25-50B of core capital (if I understand the definition in footnote 62 correctly). 20% of $17B in annual income is $3.4B, which is enough to pay the full $2B per year on the juniors and have $1.4B left over for common dividends and executive bonuses. FnF will already have more than $25B in core capital once the seniors are gone. This whole thing about "no dividends until $175B in common equity" is way, way off. you are right, it's not all or nothing until 175bn. but it's important to look at the leverage ratio also. the minimum leverage ratio excluding buffers is 152bn in tier1 capital. if you assume 25-50bn for preferred, that's around ~115bn common equity. throw on 25bn from the initial 25% buffer = ~140bn common equity before any dividends can be paid. still a lot. edit: for all the over-conservative problems in this document, there is some material wiggle room that may or may not occur as a result of the questions asked inside it. I don't think this is right. Tier 1 capital is defined at page 312 and my reading is it is defined as common equity or classified as equity under GAAP. @midas Is a prepaid asset (ie the dividend overage from the NWS) classified as equity under GAAP? Tier 2 capital in my reading defined as preferreds. Also, page 101: FHFA expects that each Enterprise generally will seek to avoid any payout restriction by maintaining regulatory capital in excess of its buffer-adjusted risk-based and leverage ratio requirements during ordinary times. I won't get to looking up above definitions tonight. I don't know where 'ordinary times' are defined yet. see page 15 of the fact sheet for what goes where. Tier 1 capital is basically common + preferred. I am guessing that any potential asset from Tsy from overage (not expected by me) would count as common. I looked at page 15. It is consistent with the definitions I cited and specifically says CET1 capital does not include par value of preferred stock. re-read your quote from the original post. you said "tier 1 capital". not CET1. "tier 1 capital" includes prefs. CET1 does not.

those numbers are likely too optimistic. I think they have a target for what they want common and jr pref to 'get' at the first public or private offering if the virus impact on the economy and/or politics doesn't mess it all up. pure guess here: 1.8bn shares currently. if govt monetizes all their warrants thats 7.2bn more = 9bn total. jr pref conversion @ 75pct of par and $5 common valuation is ~ 5bn shares so 14bn total. If they raise $60bn @ $5 that's 12bn more shares. So guessing 26bn shares @ 5 = $130bn mkt cap at first offering, that should hopefully get them to level 1 capitalization (~100bn common + 40bn fresh preferred). why so low mkt cap? to allow for lower ROE and also additional capital overhang from the buffer amounts which will likely increase share count further from 26bn.

Footnote 63 on page 101 says "An Enterprise’s “prescribed buffer amount” means, as applicable, its PCCBA or its PLBA." The last two tables on page 10 of the fact sheet show that the PCCBA is $99B and the PLBA is $91B (both numbers are for FnF combined). That puts Table 8 into a whole new light. FnF can pay out up to 20% of its eligible retained income (page 100: "The maximum payout ratio is the percent of eligible retained income that an Enterprise can pay out in the form of distributions and discretionary bonus payments during the current calendar quarter.") when it has between 25% and 50% of those buffers above, which is roughly $25-50B of core capital (if I understand the definition in footnote 62 correctly). 20% of $17B in annual income is $3.4B, which is enough to pay the full $2B per year on the juniors and have $1.4B left over for common dividends and executive bonuses. FnF will already have more than $25B in core capital once the seniors are gone. This whole thing about "no dividends until $175B in common equity" is way, way off. you are right, it's not all or nothing until 175bn. but it's important to look at the leverage ratio also. the minimum leverage ratio excluding buffers is 152bn in tier1 capital. if you assume 25-50bn for preferred, that's around ~115bn common equity. throw on 25bn from the initial 25% buffer = ~140bn common equity before any dividends can be paid. still a lot. edit: for all the over-conservative problems in this document, there is some material wiggle room that may or may not occur as a result of the questions asked inside it. I don't think this is right. Tier 1 capital is defined at page 312 and my reading is it is defined as common equity or classified as equity under GAAP. @midas Is a prepaid asset (ie the dividend overage from the NWS) classified as equity under GAAP? Tier 2 capital in my reading defined as preferreds. Also, page 101: FHFA expects that each Enterprise generally will seek to avoid any payout restriction by maintaining regulatory capital in excess of its buffer-adjusted risk-based and leverage ratio requirements during ordinary times. I won't get to looking up above definitions tonight. I don't know where 'ordinary times' are defined yet. see page 15 of the fact sheet for what goes where. Tier 1 capital is basically common + preferred. I am guessing that any potential asset from Tsy from overage (not expected by me) would count as common.

The main restraint to reach level 1 (non buffer) freedom is the $152bn leverage requirement. This can include common + preferred. I guess the $152bn drops to about $140bn in the final rule and $40bn is preferred so roughly $100bn common equity to hit this threshold. The buffers are level 2. The buffers are in the document to satisfy the anti-FnF'rs. There is wiggle room both in the size and time to get there. Dividends aren't crucial right away and the exec bonus rules can be massaged per the document's questions. I guess the $100bn buffers will drop to $80bn so I think about it in four $20bn increments. So the real common equity requirements are somewhere between 100bn and 180bn but the latter is many years out, big phase in.