COBFInfinity

Just so everyone doesn’t think I’m a hater, this seems like a reasonable counter argument at first glance although again I haven’t done any work on the stock. I just think people saying that the chance is still greater than 50/50 because SM said he would do it before the coup happened aren’t updating their beliefs correctly. Lots of people are saying/implying this, but can someone clarify WHY they think Mnuchin would choose not to sign a PSPA agreement based on what Trump did this week? I accept that there might be a reason, but I'm not sure what it would be. Mnuchin's job ends in 11 days, he's fabulously wealthy, and it's unclear if he has any interest in running for any office in the future, so I honestly see ZERO concern that he would have if a few Democrats don't like what he does - they were never going to like it anyway.

I know you're just here to troll and if the preferreds are up 150% next week, you won't be back to talk about it, but I'll humor you because you are trying to give the impression that you're doing some real second level thinking, but can't actually see the obvious. The email to Fannie Mae staff said that it was "possible" that the conservatorship would be ended imminently, and if so, they would need some people to work over the holidays. So did they work over the holidays? Probably not, because, duh, the conservatorship was not ended in late December. We all know this. You logic is about as good as this: Mnuchin only believes in ending conservatorships during Hannukah, and now that it's January, he can't do it for religious reasons. What you fail to recognize is the importance of Fannie Mae senior management having reason to believe the conservatorship would end imminently. Is it fair to assume they know more about what is happening than you? Do you think maybe they've had many discussions with Mark Calabria about what they might expect? Do you really think they would notify staff if absolutely nothing was expected to change? So it's blatantly obvious that Mnuchin intended to sign a PSPA agreement. Exactly what changes, none of us here know. Is it possible he has had a last minute change of heart? Sure, it's possible, but HE has definitely not said that. The last public comments said he was likely to sign. But if your whole argument is, "It didn't happen two weeks ago, therefore it will never happen," then perhaps you shouldn't be casting stones at how anyone else evaluates this investment.

I assume you saw Gasparino float this on Twitter last night. I don't think anyone here knows for sure what would happen to PSPA amendment, but the odds that it occurs clearly plummet if Mnuchin is no longer Secretary, whatever the reason. Mnuchin was kind enough to put us at ease overnight (https://www.timesofisrael.com/netanyahu-calls-rampage-in-dc-disgraceful-doesnt-mention-trump/): "Mnuchin indicated that he would not be resigning from his position in light of the attack on the Capitol, as Deputy National Security Adviser Matt Pottinger did Wednesday. “I look forward to getting back to Washington, DC, with our continued work on the transition,” he said.

As a reminder, not EVERYTHING is based on Mnuchin. Spike in interest rates will reduce refi activity, reducing GSE profits. Price drop may not be unreasonable based on that.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived. What makes you believe something will happen at the last minute? That’s another one of OUR dates? These papers are like call option that on January 20, imo. At least the executive action part of the value will expire. I am not sure what the lawsuit part is worth. Even if executive action were to occur, there is a strong likelihood that it will just be reversed. Yep. Now Dems control House, Senate, and presidency. Nothing will be done in the next 4 years at least. Or Mnuchin will say, "I don't want to leave this up to Dems" and he'll sign the PSPA amendment.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived. What makes you believe something will happen at the last minute? That’s another one of OUR dates? These papers are like call option that on January 20, imo. At least the executive action part of the value will expire. I am not sure what the lawsuit part is worth. Even if executive action were to occur, there is a strong likelihood that it will just be reversed. No, January 20 is clearly Steve Mnuchin's deadline, not mine, and he started talking about ending the conservatorships before he even started the job 4 years ago. If he had no interest in actually doing something, why did he bring it up then and then keep telling everyone for 4 years that he wanted it to happen? Now, I don't believe he's going to give investors anywhere near what they hoped for, but he can do enough to set the path for a recap to occur. We'll all find out soon enough.

Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived.

That's at least two interviews Calabria has lined up for the next 3 weeks, the other being with Tim Rood. It sure does look like a signal that he wants to talk about something positive. If not, he would just take a call on Jan 20 from WSJ or Bloomberg and explain that Mnuchin didn't want to play ball anymore. But yet again, Mr. Market says F your wishful thinking and sends the preferreds a few percent lower.

You might be surprised to learn that many investors have different preferences than you and Bill Ackman. There are dozens of mutual funds and ETFs that have a dividend focus. There are trusts and endowments that have dividend mandates. Lots of investors look to their stocks for cash flow, not appreciation. Simply put, it is not debatable that having no dividend reduces the pool of investors for the GSE's. So if you are correct that dividends don't change the intrinsic value (which can't be perfectly true, but I agree it's close enough for this argument), then you should expect a lower stock price at which capital is raised by excluding a large block of potential investors. I'm sure Calabria will be given that message - what decision he makes on whether to allow dividends early on, I can't predict.

I don't understand what you mean. Tsy already has 79.9% ownership, so if any of the Sr Pfd is converted to common, they go above 79.9%. Unless you're implying the warrants are cancelled, which I don't think will happen. If Tsy is going to write off an investment, it will be the Sr Pfd, not the warrants. As to the 79.9% number, it's been a long time and I don't remember who said what or when, but it's been established that the reason that number was used was because if they go to 80%, the U.S. Gov't has to consolidate the companies on its balance sheet. This would cause both the assets and liabilites to increase significantly, but of course people would freak out because the debt side would go up and this would be seen as a "really bad thing".

Then Tsy owns more than 80% of common and GSE liabilities get added to U.S. Gov't debt. Is that a plausible scenario?

Quickly skimmed through the list of variables on QuantumOnline. FNMAO has the worst terms, paying 2-Year Tsy - 0.18%, which results in -0.06%, but luckily with a floor of 0%, of course. If FNMA preferreds were recapped and paying dividends right now, how much would you pay for this one? Yet, the most recent trades have been at the same level as other series with rates of 4.5-6.0%. I don't get it.

P.S. As I mentioned a few weeks back, I think it's CRAZY that the various preferred series that have floating rates sub 0.50% right now are trading at such modest discounts to the fixed rate preferreds. Absent a settlement with plaintiffs that requires an exchange offer on those series at comparable terms to the other series (which I no longer think is very likely), there is no economic argument for the GSEs to retire those. Post-recap, with dividends turned on, what will they trade at? Maybe 50-60% of par? Seems like a really bad bet to me vs. swapping into fixed rates.

Maybe, maybe not. I've never been willing to pay up for that feature as I'm not sure it does any better in an exchange offer than, say, FNMAG. FNMAG has a 5.38% dividend and trades 5% less in par value and 18% less in market price. Perhaps there are scenarios where FNMAS comes out better than FNMAG, but I just don't see it being worth that premium.

Your view appears to be that existing preferreds will be called with proceeds of new preferred sales. I think this is very wrong for three very simple reasons. First: The capital rule strongly encourages increasing common equity capital over preferred, so it makes sense to transfer preferred capital to common capital bucket. Second: Since preferred has lower value in reaching capital targets, total preferred outstanding is likely to be lower post-recap than it is today. If true, your view means that additional common equity needs to be sold to redeem preferred stock. Why would the GSE's want to add additional amounts to raise in the market when they could just do an exchange? Third: A couple of the largest preferred issues are not callable at will. For example, FNMA Series S (FNMAS) has a 7.75% dividend and can only be called every 5 years on 12/31. Today was a potential call date - the next won't be until 12/31/2025. This is a huge $7 billion issue and FNMA has no intention to every start paying 7.75% on these again. So unless these call dates magically align with other recap timing, they need to be removed from the capital structure well before dividends are turned back on.

I agree with Orthopa that preferred exchange makes no sense at the end of recap. It may not be at the start, but that just means the middle, not the end. I'm not sure why the investment bankers' desire to get paid should influence how fast the GSE's raise capital. I'm sure they're persuasive, but GSE management needs to make those decisions.

P.S. on the warrants. While they have value unexercised, no one knows exactly what it is. If Mnuchin exercises them, they will have transparent value and future Treasury will look bad if they act in a manner to cause the investment to drop in price.

WB_fans82, I've disagreed with you on a few points, but I am coming around to your comments a few weeks back, that Mnuchin will not write down the Sr Pfd. If he wanted to do that, he would have settled the lawsuits. To do it outside of settlement shows no benefit to Tsy investment and opens him up to criticism, maybe even legal challenges (though he would be gone by then). I also don't think Sr Pfd gets converted to equity, because then Tsy owns more than 80% of common and then all the GSE debt goes on U.S. Gov balance sheet and I don't think Mnuchin wants that to be his legacy. So I think your idea of just officially ending the NWS and changing Sr Pfd to non-cumulative is a clean route to take. The question is how do they make sure it gets paid off at some point? Seems like the two options are a high dividend rate that would be desirable to replace with fresh capital or have it convertible into common (assuming that doesn't trigger the 80% ownership if it is at an out-of-the-money strike price). In order to count as capital, it has to be perpetual, so there can't be a mandatory conversion or specified paydown periods. The problem in my mind with this type of solution has always been that it doesn't make the lawsuits "go away", as Calabria once implied. But thinking through my balance sheet analysis (if I can call it that) crystallized that, as long as the NWS is ended, it isn't THAT big of a deal whether the Sr Pfd is written down, because most of that writedown will accrue to the Tsy warrant value anyway. So while we certainly would like to recapture the excessive payments Tsy received, it's not a deal killer if we don't. It will take longer, but it can still get done. So obviously we all wait for SCOTUS opinion, but if shareholders lose, I think it is possible that plaintiffs throw in the towel on litigation so that the recap can begin. Even if shareholders win, they will want a settlement a lot more than Tsy, so in the interest of time value and getting the recap moving, they would probably accept a fraction of what they hoped for. So I am feeling a little more bullish despite my concerns about Mnuchin. I think the PSPA amendment might have a lot fewer moving parts than many people have imagined, but it can work. The one thing I don't see mentioned much is that the warrants either need to be exercised or amended to remove the dilution clause that Tsy retains 79.9% of common even after a capital raise, which is such an obvious recap killer that I think we just take for granted that it will be changed. But does Tsy expect compensation for that? Assuming this is kind of what happens with Mnuchin's "framework", the final big question for Jr pfds is: when will common stock pay a dividend? If they decide that's the way to go to attract more capital on the first common raise, then Jr Pfds (possibly barring those with minuscule yields) likely get exchanged into common somewhat before that. Based on current timelines, that's probably less than a year out (pretty easy way to get rid of the lawsuits, too). If common stock will not pay a dividend for a while, then Jr Pfd have years to go before reaching par.

Even without knowing anything about the GSE conservatorship, you should know this is obviously false. FDIC absolutely has to act in its own interest because it is on the hook to cover insured deposits of an insolvent bank. So the FDIC has discretion to take actions that will minimize the potential for it to lose money, even if it may be less favorable for the bank's creditors. I'm curious what act(s) you think the FHFA did that was "in its own interests" anyway. Quite the opposite of the FDIC, FHFA had no money at risk in the GSE's - it was Treasury that had all of the economic exposure. Is FHFA empowered to act in the interests of Treasury as opposed to its statutory purpose of conserving assets of the GSE's? Hmm...I think there are some lawsuits about that.

how do you think collins is decided? 1) remand (win) on APA and no backwards relief on constitutional 2) immediate relief on constitutional 3) loss on both then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par.

You're ignoring all the clues we've received in the last two years, starting with Joseph Otting saying in January 2019 that Calabria had "signed off" on the White House's reform plan. While all the details were not clear at the time and viewpoints may have changed, I do believe that Mnuchin and Calabria were on the same page as to whatever the plan was. A few months later, Calabria said he thought the lawsuits would "go away" based on whatever changes would occur based on this plan. So you've just laid out a scenario in which the lawsuits definitely do not go away. Therefore, it does not match the plan they have alluded to many times. This would seem to imply two possibilities. 1) The plan changed and we can not rely on prior comments by Mnuchin and Calabria. 2) Mnuchin and Calabria were lying about their intentions all along. Given that either of these possibilities should result in you having no confidence in what Mnuchin and Calabria will do, your view doesn't make much sense to me.

I've been pondering the question of how does Mnuchin justify writing down any of the Senior Preferred without blowback. I'm sure someone else has had these thoughts long ago (investment banking types), but maybe it is easier than I thought to justify a significant, though partial, writedown that is backed by the economics. The following is a very simple balance sheet perspective (i.e., not going to get me a job as an investment banker). Imagine a perpetual scenario with Sr Pfd/NWS (not hard to do, right?) The capital structure is impacted as follows: *Jr Pfd is wiped out *Common stock (and importantly, warrants) is wiped out Now imagine a scenario where the Sr Pfd is paid off and the companies are recapitalized: *All decreases in Sr Pfd accrue dollar for dollar to Jr Pfd until Jr Pfd is worth par *Then, all decreases in Sr Pfd accrue dollar for dollar to Common stock *79.9% of Common stock value accrues to Treasury warrants So let's look at Fannie Mae as of 9/30: *$138 B Sr Pfd *$19.13 B Jr Pfd, but currently worth $0 *Common Stock, worth $0 *Tsy Warrants, worth $0 *Total Value of Tsy investments, $138 B Now we'll look at a scenario where the Sr Pfd is written down to $0: *$0 Sr Pfd *$19.13 B Jr Pfd, worth $19.13 *Common Stock, worth $118.87 *Tsy Warrants, worth $95.096 *Total Value of Tsy investments, $95.096 B Now, Tsy is going to say it is not going to give up value for nothing, so FNMA issues a new Sr Pfd to Tsy at no cost, par value of $42.904 B and a market-based coupon (which should be very low). Result is an end to NWS and a substantial reduction in Sr Pfd, but Tsy's investment is, on paper, unchanged. Yet, the GSEs now have a path to recapitalization without settling the lawsuits or admitting there was ever a problem with the NWS. As Calabria said, maybe the lawsuits just "go away" at that point. As I said, this is too simple to just move around balance sheet numbers, but I can imagine the GSE investment bankers being tasked with estimating the value of the common stock in fully recapitalized entities and then Tsy uses those as offsets to write down some of the Sr Pfd. They could reasonably come close to my scenario if they wanted to (hint, hint). Alright, someone poke holes in this.

Does it really matter where Mnuchin is? Everything could be wrapped up, but they might wait for a specific date to actually release the news. Not sure if it matters where Mnuchin is at that point, as long as he's still alive. And yes, I have worried about whether Mnuchin or Calabria dies before a PSPA amendment! Thats true but if this goes through when he is in the middle east it may look a little weird. It is 2020 though so who knows! I have thought about the death angle but thank god for lackeys below. I have no idea who the lackeys are or whether they would sign off.

Does it really matter where Mnuchin is? Everything could be wrapped up, but they might wait for a specific date to actually release the news. Not sure if it matters where Mnuchin is at that point, as long as he's still alive. And yes, I have worried about whether Mnuchin or Calabria dies before a PSPA amendment!

The GSE endgame has had some parallels to Avengers: Endgame for me. AVENGERS TIMELINE 1. April 23, 2018; Avengers: Infinity War --> Stephen Strange: "We're in the Endgame now." 2. April 26, 2019; we wait a year to get the first "Big Bang" in Avengers: Endgame. These are my current feelings and fears. NATASHA ROMANOFF: This is gonna work, Steve. STEVE ROGERS: I know it will. Cause I don't know what I'm going to do if it doesn't. 3. A few minutes later, Act I ends. Their plan didn't work. Transition to Act II reads, "FIVE YEARS LATER." ****** Comparable GSE TIMELINE? 1. May 8, 2019; GSE Endgame signaled --> Bloomberg reports "He (Calabria) brushed off concerns about the legality of Treasury’s net-worth sweep, which is the focus of legal challenges. “I think that if we can get them out of conservatorship and then we can set a path, I think a lot of those issues will go away,” he said. 2. December 2020; PSPA Amendment? 3. Five years later? :-\