FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[orthopa]

Pulitzer Prize winner Morgenson with another article...

http://www.nytimes.com/2016/04/13/business/fannie-mae-suit-bailout.html?smid=tw-share

 

Looks like they made a few documents public. This will make Friday very interesting.

 

Was just going to post something to this effect. Looks like @JoshRosner and @gmorgenson on twitter have posted some of the documents.

 

One of his tweets say 3rd amendment to PSPA a political sham to hand over GSE business to big banks and that UST knew Fannie and Freddie would return to profitability and death spiral a lie.

 

 

[orthopa]

Did the UST plan on giving all of that business to the big banks all along? I forget the name of the guy who was accused of playing both sides of the fence ie the gov and big banks but that would make sense if he played a large roll as suspected in the negotiations.

 

Maybe Berkowitz's lawyer did give him a wink at some point after all...

[merkhet]

Link to the unredacted docs

 

https://www.scribd.com/doc/308174677/Documents-unsealed-by-Margaret-M-Sweeney

[orthopa]

Questions is...

 

Does this change the % chance of favorable plaintiff outcome and do you increase your position with both the common and preferred trading a low levels as a result?

[doughishere]

Susan McFarland, Fannie’s former chief financial officer, said she told high-level officials at the Treasury on Aug. 9, 2012, that the company was, in fact, “now in a sustainable profitability, that we would be able to deliver sustainable profits over time.”

 

 

WOW

[doughishere]

“I believed we were now in a sustainable profitability, that we would be able to deliver sustainable profits over time... We were not there yet, but, you know, you could see positive things occurring.”

 

From a deposition with Susan McFarland on July 15, 2015.

 

In addition to telling Treasury officials in early August 2012 that Fannie would be able to sustain profits, Ms. McFarland said that Fannie could soon reap about $50 billion in income because of the reversal of an accounting entry, known as a deferred tax asset, required under accounting rules when the company began earning profits again.

 

 

WOW

 

 

A copy of the presentation that Ms. McFarland made to the Treasury was also unsealed. It contains 10 years of internal financial projections from Fannie, indicating that the company would not require further assistance from taxpayers.

 

 

 

Im on the road.....can anyone post that slide?

 

 

 

THE CFO.....

In her deposition, Ms. McFarland said that she believed her conversation with the Treasury propelled the government to change the terms of the bailout to seize Fannie’s and Freddie’s profits. “When the amendment went into place,” Ms. McFarland testified,

 

 

http://www.nytimes.com/2016/04/13/business/fannie-mae-suit-bailout.html?smid=tw-share

 

 

 

You know, I voted twice for Obama, Generally I agree with him on things.....hes going to go down as a great president...probably get a battleship named after himself, His foreign policy is truly amazing.....agree with him on the social  issues that hes tried to advance....despite it bringing me more hardship(i could probably use more in my life).........but this whole GSE thing has just left a bitter taste.

 

 

WOW

The notes on the document state: “3 yrs. of cum. profits, you start to think about releasing the valuation allow. The valuation allow. When probably 2013, 2014.”

[Guest cherzeca]

Questions is...

 

Does this change the % chance of favorable plaintiff outcome and do you increase your position with both the common and preferred trading a low levels as a result?

 

ortho, i already did.

 

i know i am about 5000 miles ahead of where i should be, but think about how that old bugger lamberth feels right now.  he feels that he was jobbed by the govt, which ought to strike lamberth especially (was a govt lawyer before judge), and now he feels he has egg on his face (especially when this case comes flying back to him from appeal...[spits 3 times])

 

i think govt just lost the only friend they had

[merkhet]

I just skimmed through the Exhibits. (I'll dig in more deeply this afternoon.) If my initial reaction to the released documents is correct, the government is going to get crushed on Friday.

[Guest cherzeca]

I just skimmed through the Exhibits. (I'll dig in more deeply this afternoon.) If my initial reaction to the released documents is correct, the government is going to get crushed on Friday.

 

right.  i have only read the highlights, but this leads me to wonder how fhfa and doj counsel could sign their briefs setting forth the death spiral theme when they either knew or should have known about these facts.

 

if i were lamberth, i would be thinking of applying court sanctions.

 

also [spits 3 times], while one may think brown and ginsburg are dispositionally favorable to Ps and millet is pretty much straightforward, you would think millet would lose all sympathy for Ds argument given these facts in the face of the death spiral argument Ds hung their hats on...remembering that millet worked in solicitor general's office for 10 years and would be furious if she had been jobbed by the attys reporting to her

[Guest cherzeca]

i wonder what part of the motion judge sweeney denied?  8)

[orthopa]

I dont know shit about law and appreciate the law stuff you guys work through and granted some has been very in depth and theoretical and I think thats where some have become leary about plantiffs chances.

 

As a non law lay person this stuff is just flat out lying. Ulogetti signs one thing then says he doesnt know.

 

"a former Treasury official who was a former special adviser to the director of the Federal Housing Finance Agency, the conservator overseeing Fannie and Freddie. In December 2013, Mr. Ugoletti signed an affidavit for the case stating unequivocally that neither the Treasury nor the Federal Housing Finance Agency envisioned that the companies’ deferred tax assets were about to be reversed in the months leading up to the profit sweep, generating huge profits. He also said that the move was not intended to “increase compensation to Treasury.”

 

But in the deposition in May, Mr. Ugoletti said he did not know whether the Treasury or the Federal Housing Finance Agency officials knew about the potential for the profits at Fannie and Freddie at the time of the sweep."

 

Unbelievable.

[Guest cherzeca]

I dont know shit about law and appreciate the law stuff you guys work through and granted some has been very in depth and theoretical and I think thats where some have become leary about plantiffs chances.

 

As a non law lay person this stuff is just flat out lying. Ulogetti signs one thing then says he doesnt know.

 

"a former Treasury official who was a former special adviser to the director of the Federal Housing Finance Agency, the conservator overseeing Fannie and Freddie. In December 2013, Mr. Ugoletti signed an affidavit for the case stating unequivocally that neither the Treasury nor the Federal Housing Finance Agency envisioned that the companies’ deferred tax assets were about to be reversed in the months leading up to the profit sweep, generating huge profits. He also said that the move was not intended to “increase compensation to Treasury.”

 

But in the deposition in May, Mr. Ugoletti said he did not know whether the Treasury or the Federal Housing Finance Agency officials knew about the potential for the profits at Fannie and Freddie at the time of the sweep."

 

Unbelievable.

 

attorneys for fhfa and treasury can't possibly know what the fnma cfo mcfarland was thinking or what she "said" to fhfa/treasury.  but these attorneys are charged with the obligation to make a reasonable effort to make sure that their arguments are grounded in fact.  now we have not seen the docs currently subject to claim of privilege, so we dont necessarily know whether these attorneys could or should have known that the "death spiral" theory was a load of crap.  [but one wonders whether you might read that time's awasting boys, fnma about to go profitable, time to implement NWS etc etc]

 

as an attorney who has participated in some important cases and transactions, and would have loved to have been able to "make it up", i can tell you that i am totally ripped that attorneys representing the govt has "apparently" failed to live up to their obligations or even lied to the federal courts

 

fwiw, i think all shares of fnma and fmcc are a buy at these levels, given the new level of available info.  just imho

[Guest cherzeca]

i think i might adjust upward my odds that judge sweeney grants motion to compel production of privileged docs at least in part...[spits 3 times]

[doughishere]

i wonder what part of the motion judge sweeney denied?  8)

 

Ain't that the truth.

[doughishere]

I dont know shit about law and appreciate the law stuff you guys work through and granted some has been very in depth and theoretical and I think thats where some have become leary about plantiffs chances.

 

As a non law lay person this stuff is just flat out lying. Ulogetti signs one thing then says he doesnt know.

 

"a former Treasury official who was a former special adviser to the director of the Federal Housing Finance Agency, the conservator overseeing Fannie and Freddie. In December 2013, Mr. Ugoletti signed an affidavit for the case stating unequivocally that neither the Treasury nor the Federal Housing Finance Agency envisioned that the companies’ deferred tax assets were about to be reversed in the months leading up to the profit sweep, generating huge profits. He also said that the move was not intended to “increase compensation to Treasury.”

 

But in the deposition in May, Mr. Ugoletti said he did not know whether the Treasury or the Federal Housing Finance Agency officials knew about the potential for the profits at Fannie and Freddie at the time of the sweep."

 

Unbelievable.

 

It's fraud and misrepresentation

[merkhet]

i wonder what part of the motion judge sweeney denied?  8)

 

Ain't that the truth.

 

She denied the alternative to merely allow reference to the docs. I'm with @cherzeca. I think it is now more likely than before that Sweeney grants the Motion to Compel.

[doughishere]

i wonder what part of the motion judge sweeney denied?  8)

 

Ain't that the truth.

 

She denied the alternative to merely allow reference to the docs. I'm with @cherzeca. I think it is now more likely than before that Sweeney grants the Motion to Compel.

 

 

Well I'm guilty of being egotistical, especially about all this, but it's still an up hill battle. As cherz says...spit 3 times.

[doughishere]

Dick Bove comments

 

http://www.valuewalk.com/2016/04/fannie-mae-depositions-richard-bove/

 

 

I have had the opportunity to read snippets from these depositions. They are clear in indicating that it has always been the intent of the Administration to eliminate Fannie Mae and Freddie Mac (FMCC/$1.28/Buy). Moreover that it would attempt to do so by weakening their capital base and their ability to generate net income. This is directly contrary to the Congressional intent for these companies as stated in the Housing and Economic Recovery Act of 2008 (HERA).

 

Put that in your pipe and smoke it.

 

 

#fanniegate

 

 

 

Edit (3:45pm Eastern):

 

The Link is https://assets.documentcloud.org/documents/2799861/Fannie-Freddie-Exhibit-C.pdf

 

 

Q.  (BY MR. THOMPSON)  Did you think it was the effective nationalization of the companies?              MR. LAUFGRABEN:  Objection; form.              MR. BARTOLOMUCCI:  Objection; form. A.  No, I didn't view it as nationalizing.  It borders on that; I can see.              But I had, shortly before that, had a meeting with Treasury whereby we reviewed our forecasts.  I had expressed a view that I believed we were now in a sustainable profitability, that we would be able to deliver sustainable profits over time.  I even mentioned the possibility that it could get to a point in the not-so-distant future where the factors might exist whereby the allowance on the deferred tax asset would be released.  We were not there yet, but, you know, you could see positive things occurring.                So when the amendment went into place, part of my reaction was they did that in response to my communication of our forecasts and the implication of those forecasts, that it was probably a desire not to allow capital to build up within the enterprises and not to allow the enterprises to recapitalize themselves.    Q.  (BY MR. THOMPSON)  And with whom at Treasury do you have this meeting?

 

 

Q.  (BY MR. THOMPSON)  And with whom at Treasury do you have this meeting    A.  So the -- which meeting?    Q.  The one you just referenced where --    A.  Where I had the discussion about the forecasts?    Q.  Yes.    A.  So it was a common practice for us to meet with Treasury on a quarterly basis to review our results from the past quarter and to update them on our forecasts;

 

 

 

Q.  (BY MR. THOMPSON)  And just to be clear on that, that would have been within a month of the Third Amendment?    A.  It would have been prior to that --    Q.  Yes.    A.  -- because it's all part of the discussions we have through the quarter-end-close process and forecast preparation and Board prep and all that kind of stuff that takes place in that cycle.  Q.  Just so the record is clear, when you say,"prior to that," what period would that have been? A.  Well, it would have been probably -- I would suspect it was -- something that occurred in July would be my -- because of the timing

[doughishere]

Q.  (BY MR. THOMPSON)  This document says, "Senior Preferred Stock Purchase Agreement: Treasury Draw Projections, October 24, 2011, Financial Planning & Analysis."                Who was in charge of the financial planning and analysis of Fannie at this time?    A.  I believe it was Anne Gehring reporting to me.    Q.  Okay.  And then if we turn to page -- I am going to refer to these Bates numbers -- these are the little numbers in the bottom right-hand corner -- 72478. It's the 13th --    A.  78?    Q.  Yes, 78.    A.  Okay.    Q.  And it shows projections of total net income. And if we look at 2020 out through 2026, it -- in this document, Fannie's projecting profits of about 10 billion a year; is that right?    A.  Yes -              MR. LAUFGRABEN:  Objection.

 

 

 

 

Do you recall anyone at FHFA ever criticizing any of the projections of future profitability that Fannie was making in 2011 and 2012 up through the time of the net worth sweep? 6              MR. LAUFGRABEN:  Object to the form of the question.    A.  I -- my recollection is there wasn't criticism.                There were questions.  There were cautions.  In other words, you know, let's not forget that, you know, this -- that a lot of bad things have happened, right?                And, you know, with some history in mind, when the declines were occurring, the degradations were occurring, the company was having a hard time keeping up with the face of the degradations.  As a result, the forecasts that the company had been producing prior to my arrival -- and I am basing this on what I have been told, so I don't know if it's relevant here or not -- that the actual outcomes tended to be a little bit worse than what the company had been projecting.            But when I got there, we focused very heavily on trying to continue to improve the quality of the forecasts.  And I think if you look at the actual results vis-a-vis a lot of the forecasts we were producing, you would see the results and forecasts being more in alignment.  In fact, it improved over time.                Having had experience at other companies, that's not unusual that it's hard to catch up with trends, whether that's negative trends or positive trends

 

 

 

[doughishere]

 

 

 

Q.  (BY MR. THOMPSON)  I mean, from your perspective, you were dealing with the Government, and you said you weren't surprised totally by the net worth sweep.                I just really want you to explain why.                MR. LAUFGRABEN:  Same objections, and same instructions.    A.  I will tell you -- yeah.  This is from my vantage point.  I am not presuming what the Government  was thinking or wanted.  I am not trying to represent anything from them.  I may represent my perspective on what they may have been thinking.        I just sat down with them -- to the Treasury and said, "We think we're sustaining profitable."               The numbers were decent-sized. I also put on the radar that there was a possibility of a deferred tax allowance release that could be sitting in  the not-so-distant future.                So the fact that this happened shortly thereafter -- so the time -- the time connection there was part of why -- that was part of why I wasn't surprised.  Okay.  I just told them that.                So then the question is why would they be concerned of us making money and creating capital inside the enterprise.  I think in my own opinion, a lot of -- a lot of people got wiped out, and the Government had to step in on a lot of fronts during the financial crisis. I think politically it seemed a little -- it would seem to me that there would be individuals bothered that some individuals might profit from the Government's support of the enterprises, okay?                So, you know, it wouldn't -- would it be -- how would it play out if somebody made big bucks because -- off the backs of the taxpayers? I am kind of -- how some people could connect dots that the Government stepped in, put a bunch of money into the GSEs using taxpayers' funds, and now Daddy Big Bucks over here is making a big profit off of Fannie Mae stock.                You could see how positioned that way, how that would be pretty politically unpalatable.  I could see why there could be a concern that anybody plays things out that way.  So, thus, why -- I wasn't trying to presume that they completely wanted to wipe out the shareholders, but I certainly would appreciate why there would be sensitivity of things playing out in a way that somebody would glob on to that story line.              Does that make sense?    Q.  (BY MR. THOMPSON)  Yes.  Thank you.  And let's go on.

[doughishere]

Comments from Gretchen Morgenson.....

 

[doughishere]

Epstein on the  John Batchelor Show. 4/11/16

 

 

Fannie, Freddie & the Long Shadows of 2008. @richardaepstein @hooverinst. http://JohnBatchelorShow.com/schedules

 

https://audioboom.com/boos/4419874-fannie-freddie-the-long-shadows-of-2008-richardaepstein-hooverinst

[merkhet]

So after poring through the Exhibits and reviewing some of the briefs, I'm starting to make more sense of the stuff behind the scenes.

 

(1) Originally, the government pushed the idea that they implemented the NWS to stop the circular draw and because of the imminent possibility that they would have another draw.

 

(2) Then, as discovery & depositions showed that this was a lie, they backed away in their filings from mentioning these things, and, instead, relied on what they believed was good cover from Lamberth in interpreting HERA broadly enough to allow them to do whatever they want without judicial review.

 

(3) As luck would have it, they drew Judges Brown & Ginsburg, who both innately dislike delegating Congressional powers over to the administrative agencies because they are worried about (a) government overreach and (b) lack of oversight. With a helping of Judge Brown believing the government is naturally inclined to deprive private owners of private property.

 

So, because of the development of the case, the government backed itself into a situation where it can no longer argue that it had a good reason for doing what it wanted to do (as that reason is now pretty clearly false) and has to argue for the exact type of thing that worries two of the three appellate judges.

 

I know I've said this before, but I think Friday's oral argument is going to be fun.

[doughishere]

Should I keep posting highlights....or are people sick of them?

[Guest cherzeca]

@merkhet

 

"So, because of the development of the case, the government backed itself into a situation where it can no longer argue that it had a good reason for doing what it wanted to do (as that reason is now pretty clearly false) and has to argue for the exact type of thing that worries two of the three appellate judges."

 

agreed and thoughtful analysis.  but also remember that fhfa/ust presented a factual narrative in their briefs to lamberth, upon which lamberth boldly states that an admin record would be irrelevant and that Ps have not presented one "objective" fact to lead court to believe conservator acted improperly.  so in addition to backing itself into an argument that is dispositionally unpalatable to two of the three judges, fhfa/ust have also given an appeal judge like millett (who isnt an ecce liberty judge) another reason to remand (as if they dont have reason enough to reverse), namely a misleading admin record that influenced lamberth's decision to say that Ps facts were not necessary.  a true and complete admin record would have included the fnma cfo's statements about sustainable profitability and ability to soon reverse DTA allowance