typicalvalue

pfds getting smashed at the moment

It could be accurate. It also could be that Mnuchin saw the business insider article and didn't want any FnF issues this week during negotiations and so he called the WSJ writer with some non-binding quotes. Makes lots of sense

New by the Wall Street Journal (Mr. Ackerman) https://www.wsj.com/articles/fannie-freddie-privatization-decisions-likely-to-be-left-to-biden-administration-11608028200 Seems like we are getting lots of inputs on both sides.

Looking at the recent replies on this thread it's clear why JPS trade at such depressed valuation (investors are burnt on this), but given recent words of Mnuchin this will get done before inauguration, I'm fairly confident. Being done does not imply a massive deal for shareholders this will be a take it or leave it situation. If not this will be in limbo for years if Biden is planning redoing the capital rule, etc. or litigating to the infinite (heard they are running out of money so not so much left). If someone still believes that courts are the solution to the Gse's problem is off, administrative action is the only way.

I disagree that ending the NWS but leaving the seniors in place (though changed to non-cumulative) accomplishes Calabria's (or even Mnuchin's) objectives. Retained earnings alone will take around a decade to hit the full capital levels. Calabria is guaranteed not to be in office for the last half of that, and might not be past next summer. Calabria knows he could be replaced by a do-nothing like Watt or an anti-conservator like DeMarco. He will need to do FHFA's part towards recap and release (most prominently consent orders) quickly. Raising private capital while the seniors are in place is equally impossible. Any newly-issued shares, which would have to be commons to conform to the capital rule, would have zero economic value due to the seniors' massive liquidation and dividend preferences. Even if FnF are allowed to pay down the seniors, they will lack the regulatory capital buffers with which to do so for the next decade. Then it would take another decade or so to actually pay them off. Only then could private capital be raised, though at that point not much would be needed. I maintain that if Mnuchin wants third-party capital to be raised, as his words suggest, he knows that the NWS and seniors have to be gone so that the newly-issued shares will actually have value. As to rose-colored glasses, those without them are unlikely to own shares, and therefore post in this thread, anyway. I'm not sure what you are expecting here. Agree. This either gets done well (NWS stopped and Sr pfds gone) o doesn't. GSE's need to raise capital ASAP and no one is going to put a dime with the seniors outstanding to get no economic value. Calabria and Mnuchin know this. Retained earnings can be part of the equation, but raising capital is the most important part imho. The question is if Mnuchin pulls the trigger. Perhaps the market needs action and is tired of empty words. On 20th of January we will be out of doubt.

To paraphrase the old joke: If he says "no" he means "maybe". If he says "maybe" he means "yes". If he says "yes", he's no poker player. Between Mnuchin, Calabria and Crapo's statements and the WSJ editorial opinion, something seems to be brewing. Have to be honest here- something seems off. The market, while sometimes inefficient when structural/technical reasons exist (applicable here) and therefore can be slow to react to emerging phenomenon, cannot be this stupid to allow for a 50-100% increase in prices at PSPA 4th amendment signing. I think the market is applying some small discount to account for the risk that Mnuchin doesn't sign the amendment, but have to imagine a large portion of the PSPA amendment is already baked into the price at this point. I could be totally wrong here, given that the details of the amendment are key variables and unknown (simply end NWS? partial write-down of senior pref? details of commitment fee?) but I'm not sure I'd expect a 50-100% increase in prices even in a better-case scenario. I think the market wants closure on the implications of a SCOTUS decision + more specific views on Biden's likelihood of playing nice nice with any consent decree (for example- could Biden not assign a new FHFA to dramatically increase the capital requirements to make it near impossible to raise private capital and therefore keep the GSE's as cashflowing entities for the govt?) Just typing out some random thoughts. Obviously moving in a positive direction but I'm skeptical that the market is just so obviously dumb that it's missing the upcoming PSPA amendment. Thoughts? Agree, I'm quite perplexed by the fact the market has not reacted to yesterday's Mnuchin comments, pfds still on 34 cents on the dollar. Even does not believe Mnuchin or pricing that Biden admin can derail and undo what has been/will be done till 20th of january. Market is inefficient sometimes but wondering how this high IRR has not ben eaten by mr.Market or at least a bit of it.

Very important excluded quote from Mnuchin from the original Bloomberg article that Victoria Guida added later in a Twitter thread... The only thing missing here is that on SCOTUS he said: “It’s not the only issue but obviously to raise third party capital that issue has to be resolved.” Yesterday Mnuchin comments were very bullish IMHO. The question now if PSPA happens before or after Christmas, I would bet that this will come close to deadline (20 jan).

Thats my thought too. They are fileting the SG back to back to back here. My goodness. The justices are far more hostile to Tsy than I was expecting, it's going to be a long day for the government. Yes, but they're grilling David Thompson, too. Anybody's guess as to how they'll rule. yeah, waiting for @cherzeca post SCOTUS analysis

Thats my thought too. They are fileting the SG back to back to back here. My goodness. The justices are far more hostile to Tsy than I was expecting, it's going to be a long day for the government.

Listening to the SCOTUS arguments. It's funny how we have overestimated settlement odds prior SCOTUS. If we look back in October we all agreed that the worst outcome was a Biden victory and no settlement pre-SCOTUS oral arguments. Yet pfds have appreciated due to capital rule and PSPA hopes. Investing is hard.

That's only about $500,000. Irrelevant, IMO. Any news on the PSPA timing? Have you spoken with your source? Thx Luke

Someone is hitting most of these bids. Someone else wants to get out. That's what makes a market, I guess. There are a lot of trapped longs on this trade, its not a surprising behaviour that are exiting once they reach BE or at small loss.

Could be this by Ackman (it's recommending commons but as a side effect on the pfds)? Btw don't know how he arrives at his target given the insurmountable amount of capital needed

Seems that PSPA is close. Gasparino: BREAKING on @FannieMae @FreddieMac $FNMA (1 of 2) — Housing and economic aides close to @JoeBiden are legitimately worried that @MarkCalabria and @stevenmnuchin1 will enact a GSE reform that will be difficult to unwind by new administration. It’s the reason why they are spreading (2 of 2) that Mnuchin is jeopardizing his legacy at @USTreasury if he does something that screws up the housing market. Story developing $FMCC

Ya its hilarious. “Mr. Calabria has met twice recently with Mr. Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9, which also involved Larry Kudlow.” “One person familiar with the effort said Mr. Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market.”

Market seems it has given up on this trade. Its the only explanation I see to pfds trading significaly below 2019 highs. It will be a slow recognizion

The stars appear to be aligning... Very nice! Per FHFA officials, the move to finalize the capital requirement tees up FHFA and Treasury making amendments to the PSPAs to end the net worth sweep sometime before the end of this year, which would allow the GSEs to retain all of their earnings. (Current cap is $45 bil) You were right on the rule timing Luke, congrats.

Mediation Cancelled @ Michael Rop, et al v. FHFA. Not sure if it means something alone, but at this point every leaf falling off the tree could be a clue.

Steve Mnuchin Federal Housing Finance Oversight board meeting . Green light to cap rule and PSPA? Interesting https://www.treasury.gov/press-center/daily-guidance/Pages/11162020.aspx

Update: source is telling me capital rule might get pushed to next week. No update on timing of PSPA. Hope this week Capital rule is finally out. Crucial 3/4 ahead will tell us where this saga is heading. GLTA

All the more reason to settle Collins. If Calabria can entrench himself for at least another 12-18 months he should be able to get all the dominoes lined up and tip the first one over. I do wonder if this is also a tell that Mnuchin is on board, because FHFA cannot release FnF while the seniors still exist: core capital is still hugely negative right now and would trigger an immediate "critically undercapitalized" designation under HERA. Inverting this how could they continue to double down if they don't settle collins, do a 4th PSPA, and get a consent decree? Mnuchin is willing to give power and influence to a Biden Treasury Secretary to negotiate with Calabria? It all points out that leads to a settlement before December 9th. -Raising capital ASAP -Let Calabria finish the reform and buy him more time. -Consistency with the administrative action initiated -Advisors may have pushed on this and made clear that no one is going to put a dime with lawsuits outstanding. The main problem is that we think as private individuals, and they are bureaucrats. And bureaucrats tend to mess things. On the positive side now urgency has build and there is a deadline both on the admin and justice side, so this may push them.

My bigest worry right now is that Mnuchin is not on board which messes the process. Hope that all things were planned before the election, but the pace of the reform makes me doubt if its too late.

Seems that Trump has lost the election o has very slight chances. Now we enter in a countdown until inaguration where we will see if Calabria/Mnuchin (especially 2nd one) are serious about the issue. If not we will have to rely on the fairness of justice. Interesting to watch today how beaten are the pfds by the market.

Interested to know what are your views on the election (as it affects the path and speed of recap), as just 11 days remain and final debate was yesterday. My humble take is that even though we cannot trust polls given the 2016 outcome, Biden has a slightly chance of winning (less than the advantatge that polls sugest), and dunno know if the lastest Biden scandal will have the ability to hurt him on the election or will be ignored. Please keep in mind that I'm not a US citizen nor a political expert, so would like to know your view on this, especially the ones that live it from the inside.

Interesting Boyle Capital Q3 update: https://www.boylecapital.com/news-and-insights/2020-q3-commentary . As some of you may now they are big on Jr prds, and have increased their exposition this Q. Nothing new on the table, but love the way they connect the dots on this saga. Expecting a PSPA amendment/consent decree late november/early december (between elections and SCOTUS hearing).