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

[Guest cherzeca]

Calabria is set to speak publicly twice in the next couple of weeks, once on May 14 at a talk moderated by Bethany McLean, and once on May 20 at the MBA conference. Calabria's track record suggests that these are just two more opportunities to stick his foot in his mouth. For once, I want the FHFA director to just give non-answers so as not to make things more complicated. There is little he can do without knowing Treasury's plan anyway.

 

imo it's more likely than not that Calabria knows exactly what he's doing and that he's aware of the plan that otting referenced.  If a capital raise is coming (which is currently unclear), and you were a potential investor, what would you rather:  quasi-certainty that there won't be any competition or a low stock purchase price / higher pro forma % ownership relative to the current common/govt/jr pref holders.  I'd probably pick the latter.  So it might be a goal of his to not pump the common stock price.

 

so as I read you, junior holders may expect an end result to be some sort of semi-coercive conversion into common.  that conversion rate may be expected to be into common based upon outside investors purchase price, so junior holders have an incentive to see a low selling price so that upon conversion the junior holders get more common shares.  also, a depressed selling price arguably increases the chances the IPO is successful.  I say arguably because while a low selling price should flesh out more buyers, on the other hand it means that more shares have to be sold.

 

I think it is too early for this type of game theoretics.  once the bankers are hired the process will take on its own dynamic and I believe the principal dynamic will be that treasury doesn't want to fail...which may argue for a depressed selling price.  but my first principle in connection with an offering is dont shoot yourself in the foot, and the more Calabria speaks the more gunfire I hear.

[Midas79]

Supposedly the government's final brief in Sweeney's court was due yesterday. Has anyone seen a copy of the filing? I would have expected it to be all over the place by now.

[Luke 532]

Supposedly the government's final brief in Sweeney's court was due yesterday. Has anyone seen a copy of the filing? I would have expected it to be all over the place by now.

 

See attached...

13-465-0434.pdf

13-465-0435.pdf

[Guest cherzeca]

Supposedly the government's final brief in Sweeney's court was due yesterday. Has anyone seen a copy of the filing? I would have expected it to be all over the place by now.

 

See attached...

 

this will be a case that Judge Sweeney will slow play. 

[investorG]

Calabria is set to speak publicly twice in the next couple of weeks, once on May 14 at a talk moderated by Bethany McLean, and once on May 20 at the MBA conference. Calabria's track record suggests that these are just two more opportunities to stick his foot in his mouth. For once, I want the FHFA director to just give non-answers so as not to make things more complicated. There is little he can do without knowing Treasury's plan anyway.

 

imo it's more likely than not that Calabria knows exactly what he's doing and that he's aware of the plan that otting referenced.  If a capital raise is coming (which is currently unclear), and you were a potential investor, what would you rather:  quasi-certainty that there won't be any competition or a low stock purchase price / higher pro forma % ownership relative to the current common/govt/jr pref holders.  I'd probably pick the latter.  So it might be a goal of his to not pump the common stock price.

 

so as I read you, junior holders may expect an end result to be some sort of semi-coercive conversion into common.  that conversion rate may be expected to be into common based upon outside investors purchase price, so junior holders have an incentive to see a low selling price so that upon conversion the junior holders get more common shares.  also, a depressed selling price arguably increases the chances the IPO is successful.  I say arguably because while a low selling price should flesh out more buyers, on the other hand it means that more shares have to be sold.

 

I think it is too early for this type of game theoretics.  once the bankers are hired the process will take on its own dynamic and I believe the principal dynamic will be that treasury doesn't want to fail...which may argue for a depressed selling price.  but my first principle in connection with an offering is dont shoot yourself in the foot, and the more Calabria speaks the more gunfire I hear.

 

I'm not sure how it all plays out but I do think it's likely he's thought through how all of his words and actions will influence his goals, whatever they may be.

[investorG]

regarding the Collins case, is it likely the trump appointees would vote as a block?  does being a part of the 'federalist society' make it more or less likely to support the plaintiffs? 

 

While - like others here - I hope for a decisive, Edith Jones-led smackdown of the NWS, I wonder if the community has once again tilted over-optimistic regarding a court case.

[Guest cherzeca]

regarding the Collins case, is it likely the trump appointees would vote as a block?  does being a part of the 'federalist society' make it more or less likely to support the plaintiffs? 

 

While - like others here - I hope for a decisive, Edith Jones-led smackdown of the NWS, I wonder if the community has once again tilted over-optimistic regarding a court case.

 

as to your "block" question, the "trump appointees" almost all share a lineage to the State of Texas AG's or SG's office.  I expect that if you have read Judge Willett (from Texas SCt and before that Texas AG or SG office, forget which), you will know what they think. 

 

there will be pushback from judges like Higgenson, and how far the majority goes will be disputed and likely negotiated before decision finalized, but I do believe there will be a majority finding in favor of Ps at least to some extent

[Guest cherzeca]

@IG.

 

"I'm not sure how it all plays out but I do think it's likely he's thought through how all of his words and actions will influence his goals, whatever they may be."

 

you may be right.  my take is that he is an academic who just loves to tell you what he thinks, as being perceived as smart is the coin of the academic realm, and that he is clueless as to how his words might affect a difficult capital raising process.

[investorG]

regarding the Collins case, is it likely the trump appointees would vote as a block?  does being a part of the 'federalist society' make it more or less likely to support the plaintiffs? 

 

While - like others here - I hope for a decisive, Edith Jones-led smackdown of the NWS, I wonder if the community has once again tilted over-optimistic regarding a court case.

 

as to your "block" question, the "trump appointees" almost all share a lineage to the State of Texas AG's or SG's office.  I expect that if you have read Judge Willett (from Texas SCt and before that Texas AG or SG office, forget which), you will know what they think. 

 

there will be pushback from judges like Higgenson, and how far the majority goes will be disputed and likely negotiated before decision finalized, but I do believe there will be a majority finding in favor of Ps at least to some extent

 

ok, thanks.  there's 16 members.  I'm guessing we don't win in a tie so we can only afford 7 against us.  You mention Higgenson, and there's also the 2 who voted against the APA claim in the original case.  that leaves a slim margin for us as there are additional Clinton (1) and Obama (2) appointees who likely vote against. 

[Guest cherzeca]

regarding the Collins case, is it likely the trump appointees would vote as a block?  does being a part of the 'federalist society' make it more or less likely to support the plaintiffs? 

 

While - like others here - I hope for a decisive, Edith Jones-led smackdown of the NWS, I wonder if the community has once again tilted over-optimistic regarding a court case.

 

as to your "block" question, the "trump appointees" almost all share a lineage to the State of Texas AG's or SG's office.  I expect that if you have read Judge Willett (from Texas SCt and before that Texas AG or SG office, forget which), you will know what they think. 

 

there will be pushback from judges like Higgenson, and how far the majority goes will be disputed and likely negotiated before decision finalized, but I do believe there will be a majority finding in favor of Ps at least to some extent

 

ok, thanks.  there's 16 members.  I'm guessing we don't win in a tie so we can only afford 7 against us.  You mention Higgenson, and there's also the 2 who voted against the APA claim in the original case.  that leaves a slim margin for us as there are additional Clinton (1) and Obama (2) appointees who likely vote against.

 

votes solidly against on APA are Stewart, graves, higginson, costa.  while Haynes voted against on merits, it is not clear she would not join an en banc majority if there is no consideration of const, claim (she wrote no APA opinion and voted against on constitutional claim), but lets put her in against as 5.  also likely against is Dennis, although in oral arg I heard him to say that there could be a 4th A, and someone quickly said well there is no indication (and he's been through the RTC experience like jones), but lets add Dennis to make it 6.  now, if there are more on fence to endanger a majority, you might see some discussion re vacate or reverse.  if you go to constitutional claim, you put Haynes back in the majority but she would have to be convinced to provide backward relief.

 

Edit:  you can count judges, but you can also count on notion that it takes a majority of judges to grant en banc rehearing, these rehearings are disfavored and so rarely granted, and of those rehearings in 5th circuit, 80% reverse the merits panel

[Luke 532]

Odd temporary spikes in common and prefs.

[Midas79]

Odd temporary spikes in common and prefs.

 

https://twitter.com/joelight/status/1126175599507202049

[DRValue]

Odd temporary spikes in common and prefs.

 

https://twitter.com/joelight/status/1126175599507202049

 

Interests me that calabria says at least a session of congress. So assuming that means 3 years Fannie Maes capital might look like;

 

3 years net earnings of $33b.

$20b overpaid to nws refunded or tax credit (counting as capital for now...)

 

Assuming capital required is $87b that would mean a capital raise of "only" $34b.

 

With the warrants exercised that leaves c.6.5b shares outstanding.

Using a market cap of $165b (p/e of 15), raising $34b at $17 leaves 8.5b outstanding and a share price of $19.41.

 

Commons looking even more interesting.

 

Thoughts?

 

 

[Guest cherzeca]

Odd temporary spikes in common and prefs.

 

https://twitter.com/joelight/status/1126175599507202049

 

Joe light blocked me...can someone post text if important.  and copy/paste bberg article to which I dont subscribe. thx

 

(and a beer would be nice)

[Eye4Valu]

Odd temporary spikes in common and prefs.

 

https://twitter.com/joelight/status/1126175599507202049

 

Joe light blocked me...can someone post text if important.  thx

 

It's all right here: https://www.bloomberg.com/news/articles/2019-05-08/fannie-freddie-may-be-released-without-congress-calabria-says

[Eye4Valu]

Would be glad to buy you a beer as well!!!

[Luke 532]

Odd temporary spikes in common and prefs.

 

https://twitter.com/joelight/status/1126175599507202049

 

Joe light blocked me...can someone post text if important.  and copy/paste bberg article to which I dont subscribe. thx

 

(and a beer would be nice)

 

He blocked me, too. Didn't even realize it until I tried to click on that link today.

[Guest cherzeca]

I broke down and got a bberg sub. 

 

Calabria:  “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 [lawsuits] will go away,” he said."

 

meaning, to me, that we will revoke the NWS to raise capital, to get out of conservatorship, and revoking NWS is precisely the relief sought by lawsuits.

 

he does say that he doesn't think they can raise sufficient capital in "one fell swoop".  no sh*t Sherlock

[TwoCitiesCapital]

Great news!

[Midas79]

I broke down and got a bberg sub. 

 

Calabria:  “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 [lawsuits] will go away,” he said."

 

meaning, to me, that we will revoke the NWS to raise capital, to get out of conservatorship, and revoking NWS is precisely the relief sought by lawsuits.

 

he does say that he doesn't think they can raise sufficient capital in "one fell swoop".  no sh*t Sherlock

 

We didn't even have to wait until the 14th for Calabria to once again taste his own shoes without bothering to take them off first.  >:(

 

This stuff about giving Congress a full session just seems like a giant non-starter. They have already had almost 11 years, and waiting even close to that long means that Trump might not be around to see everything through. If Trump loses, the next president (presumably a Democrat) could very easily just have his or her Treasury Secretary put FnF back into deep freeze by refusing to sign off on release from conservatorship, a right granted by the PSPA contract.

 

I wouldn't give him too much grief over the "one fell swoop" comment, though. I see it as a non-answer more than anything else, something that is true but doesn't provide any new information.

[Guest cherzeca]

ok, let me play the devil's advocate.

 

headines:  FHFA chief says companies can survive without explicit backing. Lawmakers will get ‘more than sufficient time’ to act.

 

1. Calabria is conditioning the capital markets to expect no explicit fed mbs guarantee, since congress won't act before capital raise begins.  smart

 

2. Calabria smoothing congressional feathers in advance of administrative reform, by saying congress will not be preempted, even though once the administrative reform begins, there will be even less congressional will to act (if possible).  smart.

 

or calabria is just an academic turned bureaucrat who for the first time in his career can get a journalist to return his call.

 

 

[SnarkyPuppy]

How the fuck do these still trade at 40% of par?  I have a dangerously large and irresponsible position and am still contemplating adding more - but am worried of my own ignorance. 

[Guest cherzeca]

How the fuck do these still trade at 40% of par?  I have a dangerously large and irresponsible position and am still contemplating adding more - but am worried of my own ignorance.

 

the path is long and uncertain.  Calabria intimates that it is 3 years.  will juniors hit say 90% of par at beginning, middle, end or never in that three year process?  how can the capital raise fail? countless ways, from china trade destroying capital market confidence to POTUS firing Mnuchin in a fit of irrationality.

 

I like the bet, but let's admit it is a speculation.

[SnarkyPuppy]

How the fuck do these still trade at 40% of par?  I have a dangerously large and irresponsible position and am still contemplating adding more - but am worried of my own ignorance.

 

the path is long and uncertain.  Calabria intimates that it is 3 years.  will juniors hit say 90% of par at beginning, middle, end or never in that three year process?  how can the capital raise fail? countless ways, from china trade destroying capital market confidence to POTUS firing Mnuchin in a fit of irrationality.

 

I like the bet, but let's admit it is a speculation.

 

Speculation on what your CAGR is sure - downside? not sure.  Some of the illiquid $50 prefs with decent coupons trade at $18.  That's a 10.5% cagr if it takes 10 years to recapitalize. 

[hardincap]

+1 cherzeca. Fanniegaters gloat over how this is a cinch, market is stupidly underpricing, etc, forgetting that theyve been wrong about pretty much everything on fnma so far