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

[muscleman]

This is strange.

 

https://www.google.com/finance?q=OTCMKTS%3AFNMA&ei=z2EHWZCsNc6P2AbXsaGABg

https://www.google.com/finance?q=OTCMKTS:FNMAS&ei=yGEHWfCeL4GJ2Ab8gL7ACw

 

Today FNMAS went up first and then had a minor dip.

At the same time FNMA took a nose dive.

[Flynnstone5]

This is strange.

 

https://www.google.com/finance?q=OTCMKTS%3AFNMA&ei=z2EHWZCsNc6P2AbXsaGABg

https://www.google.com/finance?q=OTCMKTS:FNMAS&ei=yGEHWfCeL4GJ2Ab8gL7ACw

 

Today FNMAS went up first and then had a minor dip.

At the same time FNMA took a nose dive.

 

I don't think it's that strange. In Mnuchins world a prfd share means there's an obligation and expectation of greater safety vs. a common share. Money used by Obama from FnF should have first gone to prfd divs. My bet is at the end of all this prfd's are made whole and commons are the sacrificial lamb. Can't say that HF's were made rich when you have one of the most outspoken (Pershing) getting crushed. Paulson and Berkowitz supported the admin early on, but Ackman never did.

[muscleman]

This is strange.

 

https://www.google.com/finance?q=OTCMKTS%3AFNMA&ei=z2EHWZCsNc6P2AbXsaGABg

https://www.google.com/finance?q=OTCMKTS:FNMAS&ei=yGEHWfCeL4GJ2Ab8gL7ACw

 

Today FNMAS went up first and then had a minor dip.

At the same time FNMA took a nose dive.

 

 

I don't think it's that strange. In Mnuchins world a prfd share means there's an obligation and expectation of greater safety vs. a common share. Money used by Obama from FnF should have first gone to prfd divs. My bet is at the end of all this prfd's are made whole and commons are the sacrificial lamb. Can't say that HF's were made rich when you have one of the most outspoken (Pershing) getting crushed. Paulson and Berkowitz supported the admin early on, but Ackman never did.

 

 

I'd think the most rational thing for the government to do is to exercise its 79% warrant and max the price of the common stocks it can sell.

 

 

[Flynnstone5]

This is strange.

 

https://www.google.com/finance?q=OTCMKTS%3AFNMA&ei=z2EHWZCsNc6P2AbXsaGABg

https://www.google.com/finance?q=OTCMKTS:FNMAS&ei=yGEHWfCeL4GJ2Ab8gL7ACw

 

Today FNMAS went up first and then had a minor dip.

At the same time FNMA took a nose dive.

 

 

I don't think it's that strange. In Mnuchins world a prfd share means there's an obligation and expectation of greater safety vs. a common share. Money used by Obama from FnF should have first gone to prfd divs. My bet is at the end of all this prfd's are made whole and commons are the sacrificial lamb. Can't say that HF's were made rich when you have one of the most outspoken (Pershing) getting crushed. Paulson and Berkowitz supported the admin early on, but Ackman never did.

 

 

I'd think the most rational thing for the government to do is to exercise its 79% warrant and max the price of the common stocks it can sell.

 

I used to feel that way, but I can see the Corker, Crapo, Warner, Hensarling crew finding a way to screw common shareholders.

[muscleman]

 

I used to feel that way, but I can see the Corker, Crapo, Warner, Hensarling crew finding a way to screw common shareholders.

 

I always felt like some insiders know and trade this stock accordingly. ex. Bob Corker.

 

FNMAS has been dropping for a few days before the Lambeth ruling.

 

Maybe this time some proposal favoring pref but unfavorable to common came out and gaining some traction.  ::)

[muscleman]

http://thehill.com/policy/finance/331386-trump-mulling-breakup-of-wall-st-banks

 

I think this may be a positive signal.

I've long heard Mike Pence is banker's friend and long wondered whether he is big banks or community banks' friend.

 

This news along with the recent ICBA events seem to indicate he is community bankers' friend, which is good for FnF.

 

[muscleman]

http://video.foxbusiness.com/v/5417475089001/?#sp=show-clips

 

03:56

 

Mnuchin was asked about the priority of privatization of FnF. His answer was that he did not say he will privatize FnF. He only said he will do housing reform.

 

Do you think this is just a typical politician talk that leaves options open or is he changing his mind?

 

I remember last November he said FnF should return to the private market.

[orthopa]

This is strange.

 

https://www.google.com/finance?q=OTCMKTS%3AFNMA&ei=z2EHWZCsNc6P2AbXsaGABg

https://www.google.com/finance?q=OTCMKTS:FNMAS&ei=yGEHWfCeL4GJ2Ab8gL7ACw

 

Today FNMAS went up first and then had a minor dip.

At the same time FNMA took a nose dive.

 

All speculation of course but this looks like someone selling common into strength and buying preferred ie Ackman. Ackman started to buy some preferreds at the end of Q4 last year. I bet we see more preferred in his portfolio as the year progresses.

[jlaw277]

http://video.foxbusiness.com/v/5417475089001/?#sp=show-clips

 

03:56

 

Mnuchin was asked about the priority of privatization of FnF. His answer was that he did not say he will privatize FnF. He only said he will do housing reform.

 

Do you think this is just a typical politician talk that leaves options open or is he changing his mind?

 

I remember last November he said FnF should return to the private market.

 

From Tim Howard:

 

"The confusion over the “privatization” comment stems from the fact that different people use the same term to mean different things. Currently Fannie and Freddie are de facto nationalized companies. Secretary Mnuchin has said he wants to get them “out of the government.” Those who advocate their reform, recapitalization and release often refer to the end state of that process as “privatization,” meaning the companies no longer would be owned by the government but (again) by their private shareholders. But there also is a faction in Congress–of which Jeb Hensarling, chairman of the House Financial Services Committee, is a prominent member–who use the term “privatization” to mean the removal of the attributes in the companies’ federal charters that other “fully private” companies do not have. I suspect that Mnuchin now is aware of the dual, and opposing, meanings of the word privatization, and thus won’t allow himself to be characterized as being for or against it."

 

https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/#comments

[orthopa]

Again more speculation(but hopefully educated) but the Berkowitz, Paulson, Mnuchin triangle would favor a preferred friendly solution as well.

 

A couple of weeks ago some of the preferred could have been had again for 20 cents on the dollar.  A much higher chance for a 5 bagger-made and still makes much more sense IMO then a lotto ticket for 10-15x.

 

For those thinking that govt would want to monetize their 80% warrants why not just do rship and get 100%? A secondly in receivership isnt it the balance sheet that would determine money left for preferreds? gov will have clearly been paid back.

[muscleman]

http://video.foxbusiness.com/v/5417475089001/?#sp=show-clips

 

03:56

 

Mnuchin was asked about the priority of privatization of FnF. His answer was that he did not say he will privatize FnF. He only said he will do housing reform.

 

Do you think this is just a typical politician talk that leaves options open or is he changing his mind?

 

I remember last November he said FnF should return to the private market.

 

From Tim Howard:

 

"The confusion over the “privatization” comment stems from the fact that different people use the same term to mean different things. Currently Fannie and Freddie are de facto nationalized companies. Secretary Mnuchin has said he wants to get them “out of the government.” Those who advocate their reform, recapitalization and release often refer to the end state of that process as “privatization,” meaning the companies no longer would be owned by the government but (again) by their private shareholders. But there also is a faction in Congress–of which Jeb Hensarling, chairman of the House Financial Services Committee, is a prominent member–who use the term “privatization” to mean the removal of the attributes in the companies’ federal charters that other “fully private” companies do not have. I suspect that Mnuchin now is aware of the dual, and opposing, meanings of the word privatization, and thus won’t allow himself to be characterized as being for or against it."

 

https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/#comments

 

 

Thank you very much! This is very helpful!

I also scrolled down and read some of his additional comments. Very good!

[orthopa]

Ill be dedicating some time to read this...

 

https://www.congress.gov/bill/112th-congress/house-bill/2439/text

[orthopa]

Again more speculation(but hopefully educated) but the Berkowitz, Paulson, Mnuchin triangle would favor a preferred friendly solution as well.

 

A couple of weeks ago some of the preferred could have been had again for 20 cents on the dollar.  A much higher chance for a 5 bagger-made and still makes much more sense IMO then a lotto ticket for 10-15x.

 

For those thinking that govt would want to monetize their 80% warrants why not just do rship and get 100%? And secondly in receivership isn't it the balance sheet that would determine money left for preferreds? gov will have clearly been paid back.

[orthopa]

Credit to Jim Hodges on twitter for this...on speculation for a receivership scenario.

 

"$37B of equity. After DTA impairment @ 15%, Jist enough left to pay Sr. & Jr. Pfd's."

 

[Fat Pitch]

Again more speculation(but hopefully educated) but the Berkowitz, Paulson, Mnuchin triangle would favor a preferred friendly solution as well.

 

A couple of weeks ago some of the preferred could have been had again for 20 cents on the dollar.  A much higher chance for a 5 bagger-made and still makes much more sense IMO then a lotto ticket for 10-15x.

 

For those thinking that govt would want to monetize their 80% warrants why not just do rship and get 100%? A secondly in receivership isnt it the balance sheet that would determine money left for preferreds? gov will have clearly been paid back.

 

Finally someone is thinking. The idea of r-ship has been floating around and it makes perfect sense to start with a blank slate to raise large amounts of capital. Once in r-ship the conservator has the power to create a limited life regulated entity. If assets exceed liabilities, the assets may be transferred over to the new entity. No shareholder will have rights in the new entity (ie commons are wiped). This is all stated in HERA.

 

The details here is, once in r-ship the liquidation preference of the jr prefs are triggered and are entitled to par or remaining equity before liquidation/transfer of assets. Perry appeals ruling confirmed such rights are intact. Bankruptcy court doesn't look at GAAP financials, but will look at tangible equity. Conveniently enough, gov't senior prefs have a liquidation value of 1 billion and equity over left after 15% DTA hit is roughly 20 billion and you have 19 billion jr prefs for Fannie Mae. I think jr prefs are called before assets are transferred to new entity. Sure they can not give anything and we go to court again, but the laws governing this end game looks straight forward.

 

We won't know for sure what will happen, but I think the plan will slowly get leaked and the gap between common and prefs will widen to reflect that.

[blainehodder]

Personally I don't believe it makes sense to wipe the common. Wiping common tells prospective capital providers (that will be needed) that they can and will be pillaged by the gov at will with no repercussions. And what does that achieve vs giving the existing holders 20% crumbs? I think the risk/return on the common is much more attractive.

 

That also completely ignores the rule of law.

[SnarkyPuppy]

Personally I don't believe it makes sense to wipe the common. Wiping common tells prospective capital providers (that will be needed) that they can and will be pillaged by the gov at will with no repercussions. And what does that achieve vs giving the existing holders 20% crumbs? I think the risk/return on the common is much more attractive.

 

That also completely ignores the rule of law.

 

They won't have any problems getting capital.  It would simply be priced appropriately at a discount rate commensurate with a high risk investment.  The "rule of law" argument has failed miserably to date. 

[muscleman]

 

That also completely ignores the rule of law.

 

The rule of law and order is what this Trump admin has been campaigning about. The Obama admin has clearly ignored law and order and has done so much harm to this nation. We will see........

[Eye4Valu]

I think the common and preferred are BOTH worth the speculation based on the "no substitutes" thesis, Mnuchin and legal aside. 

[jlaw277]

http://video.foxbusiness.com/v/5417475089001/?#sp=show-clips

 

03:56

 

Mnuchin was asked about the priority of privatization of FnF. His answer was that he did not say he will privatize FnF. He only said he will do housing reform.

 

Do you think this is just a typical politician talk that leaves options open or is he changing his mind?

 

I remember last November he said FnF should return to the private market.

 

From Tim Howard:

 

"The confusion over the “privatization” comment stems from the fact that different people use the same term to mean different things. Currently Fannie and Freddie are de facto nationalized companies. Secretary Mnuchin has said he wants to get them “out of the government.” Those who advocate their reform, recapitalization and release often refer to the end state of that process as “privatization,” meaning the companies no longer would be owned by the government but (again) by their private shareholders. But there also is a faction in Congress–of which Jeb Hensarling, chairman of the House Financial Services Committee, is a prominent member–who use the term “privatization” to mean the removal of the attributes in the companies’ federal charters that other “fully private” companies do not have. I suspect that Mnuchin now is aware of the dual, and opposing, meanings of the word privatization, and thus won’t allow himself to be characterized as being for or against it."

 

https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/#comments

 

 

Thank you very much! This is very helpful!

I also scrolled down and read some of his additional comments. Very good!

 

More from Howard:

 

"Again, taken in context, I don’t read anything new (or troublesome) into this part of his comment. I think he’s trying to support the case for “getting Fannie and Freddie out of the government.” After saying that we need “to make sure there’s ample credit for housing,” he adds “but we also want to make sure that we don’t put the taxpayers at risk.” It’s then that he makes the remark you reference: “As you know, right now those two companies only exist because we have a giant line of credit from the Treasury that supports them.”

 

For me, the key phrase in that last sentence is “right now.” Unlike officials in the Obama Treasury, Mnuchin is not saying that the only reason Fannie and Freddie survived the crisis is the $187 in senior preferred stock they got from the government between 2008 and 2011. If he did say that it would be problematic, because it isn’t true. In my interpretation, though, by saying “right now” he’s drawing attention to the fact that the companies have almost no capital today (due to the net worth sweep), and because of that absence of capital the only reason that they can stay in business is the Treasury line of credit. Without Fannie and Freddie having capital of their own the taxpayers ARE at risk, and that’s what he wants to change (in my view, by reforming and recapitalizing them)."

 

https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/#comment-3315

[investorG]

Again more speculation(but hopefully educated) but the Berkowitz, Paulson, Mnuchin triangle would favor a preferred friendly solution as well.

 

A couple of weeks ago some of the preferred could have been had again for 20 cents on the dollar.  A much higher chance for a 5 bagger-made and still makes much more sense IMO then a lotto ticket for 10-15x.

 

For those thinking that govt would want to monetize their 80% warrants why not just do rship and get 100%? A secondly in receivership isnt it the balance sheet that would determine money left for preferreds? gov will have clearly been paid back.

 

Finally someone is thinking. The idea of r-ship has been floating around and it makes perfect sense to start with a blank slate to raise large amounts of capital. Once in r-ship the conservator has the power to create a limited life regulated entity. If assets exceed liabilities, the assets may be transferred over to the new entity. No shareholder will have rights in the new entity (ie commons are wiped). This is all stated in HERA.

 

The details here is, once in r-ship the liquidation preference of the jr prefs are triggered and are entitled to par or remaining equity before liquidation/transfer of assets. Perry appeals ruling confirmed such rights are intact. Bankruptcy court doesn't look at GAAP financials, but will look at tangible equity. Conveniently enough, gov't senior prefs have a liquidation value of 1 billion and equity over left after 15% DTA hit is roughly 20 billion and you have 19 billion jr prefs for Fannie Mae. I think jr prefs are called before assets are transferred to new entity. Sure they can not give anything and we go to court again, but the laws governing this end game looks straight forward.

 

We won't know for sure what will happen, but I think the plan will slowly get leaked and the gap between common and prefs will widen to reflect that.

 

would you please explain the underlined portion of your post?

[Midas79]

Conveniently enough, gov't senior prefs have a liquidation value of 1 billion

would you please explain the underlined portion of your post?

 

(snipped quote for readability)

 

This is directly stated in the SPSPA.

 

https://www.treasury.gov/press-center/press-releases/Documents/seniorpreferredstockpurchaseagreementfnm1.pdf

 

Section 3.1(a), top of page 6.

 

3.1. Initial Commitment Fee.  In consideration of the Commitment, and for no additional consideration, on the Effective Date (or as soon thereafter as is practicable) Seller shall sell and issue to Purchaser, and Purchaser shall purchase from Seller, (a) one million (1,000,000) shares of Senior Preferred Stock, with an initial liquidation preference equal to $1,000 per share ($1,000,000,000 (one billion dollars) liquidation reference in the aggregate), and (b) the Warrant.

[waynepolsonAtoZ]

Freddie, $2 billion of total comp income albeit with no deriv gains (small deriv loss). Good outcome.

 

 

[Fat Pitch]

Again more speculation(but hopefully educated) but the Berkowitz, Paulson, Mnuchin triangle would favor a preferred friendly solution as well.

 

A couple of weeks ago some of the preferred could have been had again for 20 cents on the dollar.  A much higher chance for a 5 bagger-made and still makes much more sense IMO then a lotto ticket for 10-15x.

 

For those thinking that govt would want to monetize their 80% warrants why not just do rship and get 100%? A secondly in receivership isnt it the balance sheet that would determine money left for preferreds? gov will have clearly been paid back.

 

Finally someone is thinking. The idea of r-ship has been floating around and it makes perfect sense to start with a blank slate to raise large amounts of capital. Once in r-ship the conservator has the power to create a limited life regulated entity. If assets exceed liabilities, the assets may be transferred over to the new entity. No shareholder will have rights in the new entity (ie commons are wiped). This is all stated in HERA.

 

The details here is, once in r-ship the liquidation preference of the jr prefs are triggered and are entitled to par or remaining equity before liquidation/transfer of assets. Perry appeals ruling confirmed such rights are intact. Bankruptcy court doesn't look at GAAP financials, but will look at tangible equity. Conveniently enough, gov't senior prefs have a liquidation value of 1 billion and equity over left after 15% DTA hit is roughly 20 billion and you have 19 billion jr prefs for Fannie Mae. I think jr prefs are called before assets are transferred to new entity. Sure they can not give anything and we go to court again, but the laws governing this end game looks straight forward.

 

We won't know for sure what will happen, but I think the plan will slowly get leaked and the gap between common and prefs will widen to reflect that.

 

would you please explain the underlined portion of your post?

 

Sure, reading the SPSA the liquidation preference of the senior preferred for Fannie/Freddie is 1 billion. The fly in the ointment is if Mnuchin determines the treasury wasn't paid back and 117 billion is still outstanding then we are all screwed.

 

https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-8-7_SPSPA_FactSheet_508.pdf

 

Ironically the senior preferred have the same language in terms of liquidation preference as the jr prefs. So if assets are transferred to a limited life regulated entity, the senior prefs must get par or what's left of the equity. Anything left over will presumably go to the jr prefs. It's probably in the jr prefs best interest to go through r-ship and get called immediately then stick around couple years trying to rebuild capital slowly.

[investorG]

Conveniently enough, gov't senior prefs have a liquidation value of 1 billion

would you please explain the underlined portion of your post?

 

(snipped quote for readability)

 

This is directly stated in the SPSPA.

 

https://www.treasury.gov/press-center/press-releases/Documents/seniorpreferredstockpurchaseagreementfnm1.pdf

 

Section 3.1(a), top of page 6.

 

3.1. Initial Commitment Fee.  In consideration of the Commitment, and for no additional consideration, on the Effective Date (or as soon thereafter as is practicable) Seller shall sell and issue to Purchaser, and Purchaser shall purchase from Seller, (a) one million (1,000,000) shares of Senior Preferred Stock, with an initial liquidation preference equal to $1,000 per share ($1,000,000,000 (one billion dollars) liquidation reference in the aggregate), and (b) the Warrant.

 

but the current liquidation preference is far greater.  unless they adjust the agreements, I do not see how the sr preferred drops from 187bn to 2bn if they enter receivership.