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

[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?

 

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.

 

the scenario you seem to predict is that they keep the 187bn sr preferred outstanding and they enter receivership but first they call or tender the jr preferred --- certainly possible but perhaps not the most likely outcome. 

[no_free_lunch]

Lightened up a bit more on this yesterday.  Now a 2% position.  I am completely manic on the pref's, I am going from thinking it is a multi-bag to a zero.

 

Steven Bannon is Trump's chief advisor, and also former editor of Breitbart.  There was a lengthy article I found on Breitbart, about a month old talking about Fannie.  They were very critical of the enterprise, to put it lightly.  They basically said that the company should not exist and that Obama's NWS was about the only thing he did right in his administration.  Now who knows the link from Breitbart to Bannon to Trump but this isn't reassuring.

 

I am also displeased with the amount that Trump got done with the latest spending.  It doesn't feel that he is able to implement his agenda and completely subject to whims of congress/senate.  Again not a good thing to see given the general concensus on Fannie in either party.

 

I still think there is a reasonable chance the government provides some compensation on the pref's but this is increasingly in the too hard pile and I can't have it a meaningful position.

[investorG]

mnuchin flops again, says sweep should continue per new Bloomberg article and his spokesperson.

 

back to the courts. 

 

I'm (wrong so far) counting on a strong American out there in a position of power to make a difference.

[Williams406]

No Free Lunch, Was the Breitbart article you reference the Carney piece from April 7?

 

http://www.breitbart.com/economics/2017/04/07/phony-obamacare-attack-aimed-at-luring-conservatives-to-support-a-hedge-fund-windfall/

[no_free_lunch]

Yes, that's the one. Thanks for the link.

[Flynnstone5]

mnuchin flops again, says sweep should continue per new Bloomberg article and his spokesperson.

 

back to the courts. 

 

I'm (wrong so far) counting on a strong American out there in a position of power to make a difference.

 

How much is owed under the original deal if you applied the NWS as an over payment?

[Steve_Berk]

here is the article that cites mnuchin's spokesperson who says that he wants continued payments to the gov't as required under the NWS: https://www.bloomberg.com/news/articles/2017-05-02/fannie-freddie-profit-payments-should-continue-treasury-says

[investorG]

mnuchin flops again, says sweep should continue per new Bloomberg article and his spokesperson.

 

back to the courts. 

 

I'm (wrong so far) counting on a strong American out there in a position of power to make a difference.

 

How much is owed under the original deal if you applied the NWS as an over payment?

 

not sure exactly but from what I've read the sr preferred would be fully retired by this year end if the over-payments from the original deal counted as pay downs.

[no_free_lunch]

Flynnstone5, It was around $20B for fnma in December.  I think there has been 2 payments since then.

[Flynnstone5]

Flynnstone5, It was around $20B for fnma in December.  I think there has been 2 payments since then.

 

I could see him wanting to zero out the balance so that they could make the statement that under original deal, gov has been paid back in full whenever they finally announce a definitive plan for the future.

[rros]

here is the article that cites mnuchin's spokesperson who says that he wants continued payments to the gov't as required under the NWS: https://www.bloomberg.com/news/articles/2017-05-02/fannie-freddie-profit-payments-should-continue-treasury-says

In light of his comment yesterday to MB that 'these companies exist only because of a giant line of credit from the Treasury' his position on the nws makes complete sense. It also makes complete sense that -because of that- he wants the companies to have their own capital, thus eliminating the needed reward to taxpayers. I only think this Joe Light piece came upon us because share prices were overextended, almost in bullish territory, inciting robots to go on a buying spree (they read technicals). Somebody somewhere is watching charts and technicals. It's been like that for years.

[Guest cherzeca]

Flynnstone5, It was around $20B for fnma in December.  I think there has been 2 payments since then.

 

I could see him wanting to zero out the balance so that they could make the statement that under original deal, gov has been paid back in full whenever they finally announce a definitive plan for the future.

 

+1

 

By my calculations this may happen with 2Q 17 dividend

[muscleman]

here is the article that cites mnuchin's spokesperson who says that he wants continued payments to the gov't as required under the NWS: https://www.bloomberg.com/news/articles/2017-05-02/fannie-freddie-profit-payments-should-continue-treasury-says

In light of his comment yesterday to MB that 'these companies exist only because of a giant line of credit from the Treasury' his position on the nws makes complete sense. It also makes complete sense that -because of that- he wants the companies to have their own capital, thus eliminating the needed reward to taxpayers. I only think this Joe Light piece came upon us because share prices were overextended, almost in bullish territory, inciting robots to go on a buying spree (they read technicals). Somebody somewhere is watching charts and technicals. It's been like that for years.

 

Could you tell me why his position that FnF should continue making payments under NWS makes complete sense given he said these companies exist because of a giant line of credit? I wonder what's his true intention and if you think he flip flopped.

[orthopa]

Lightened up a bit more on this yesterday.  Now a 2% position.  I am completely manic on the pref's, I am going from thinking it is a multi-bag to a zero.

 

Steven Bannon is Trump's chief advisor, and also former editor of Breitbart.  There was a lengthy article I found on Breitbart, about a month old talking about Fannie.  They were very critical of the enterprise, to put it lightly.  They basically said that the company should not exist and that Obama's NWS was about the only thing he did right in his administration.  Now who knows the link from Breitbart to Bannon to Trump but this isn't reassuring.

 

I am also displeased with the amount that Trump got done with the latest spending.  It doesn't feel that he is able to implement his agenda and completely subject to whims of congress/senate.  Again not a good thing to see given the general concensus on Fannie in either party.

 

I still think there is a reasonable chance the government provides some compensation on the pref's but this is increasingly in the too hard pile and I can't have it a meaningful position.

 

That was John Carney piece. Same jerk off that was at WSJ writing all of the negative articles.  Not sure you can put much faith in that piece. John Carney has always had an issue with FnF and Carney has no sway Mnuchin.

 

Not to mention that piece says $$$ didnt go to Obamacare when Mnuchin said yesterday the $$$ went to other parts of the gov. Sure cant follow dollar for dollar but Mnuchin just told Carney to F off.

[rros]

here is the article that cites mnuchin's spokesperson who says that he wants continued payments to the gov't as required under the NWS: https://www.bloomberg.com/news/articles/2017-05-02/fannie-freddie-profit-payments-should-continue-treasury-says

In light of his comment yesterday to MB that 'these companies exist only because of a giant line of credit from the Treasury' his position on the nws makes complete sense. It also makes complete sense that -because of that- he wants the companies to have their own capital, thus eliminating the needed reward to taxpayers. I only think this Joe Light piece came upon us because share prices were overextended, almost in bullish territory, inciting robots to go on a buying spree (they read technicals). Somebody somewhere is watching charts and technicals. It's been like that for years.

 

Could you tell me why his position that FnF should continue making payments under NWS makes complete sense given he said these companies exist because of a giant line of credit? I wonder what's his true intention and if you think he flip flopped.

No. I don't think he flip-flopped. He is being consistent. He is accepting the fact that because companies rely 100% on Treasury's money all rewards should go to taxpayers and none to shareholders. However, he is -and has been- simultaneously saying that this situation is no longer useful/needed/healthy or safe. And he has been more than clear saying taxpayers are at risk with the current set up.

 

From this line of thought he infers:

 

a) companies need their own capital for their existence and stop relying on Treasury.

b) once that is accomplished rewards can be shared among all shareholders (being Treasury one of them, potentially).

 

I am adding b) as his next line of thought.

 

Briefly, he says:

 

'The current set up is legit. But has lead to a risky situation and must be changed.'

 

He is not judging the NWS directly. Only accepting the court outcomes even though his statements reflect its unhealthiness.

 

Maybe he is trying to push things to the limit to force an outcome? The closer we get to a draw, the more politicians will become believers.

[muscleman]

Lightened up a bit more on this yesterday.  Now a 2% position.  I am completely manic on the pref's, I am going from thinking it is a multi-bag to a zero.

 

Steven Bannon is Trump's chief advisor, and also former editor of Breitbart.  There was a lengthy article I found on Breitbart, about a month old talking about Fannie.  They were very critical of the enterprise, to put it lightly.  They basically said that the company should not exist and that Obama's NWS was about the only thing he did right in his administration.  Now who knows the link from Breitbart to Bannon to Trump but this isn't reassuring.

 

I am also displeased with the amount that Trump got done with the latest spending.  It doesn't feel that he is able to implement his agenda and completely subject to whims of congress/senate.  Again not a good thing to see given the general concensus on Fannie in either party.

 

I still think there is a reasonable chance the government provides some compensation on the pref's but this is increasingly in the too hard pile and I can't have it a meaningful position.

 

That was John Carney piece. Same jerk off that was at WSJ writing all of the negative articles.  Not sure you can put much faith in that piece. John Carney has always had an issue with FnF and Carney has no sway Mnuchin.

 

Not to mention that piece says $$$ didnt go to Obamacare when Mnuchin said yesterday the $$$ went to other parts of the gov. Sure cant follow dollar for dollar but Mnuchin just told Carney to F off.

 

I wonder if Bannon and John Carney shares the same view on GSEs.

If that's the case, then the fact that Bannon seems to be pushed out of the center of power is a good thing.

 

 

 

[Desert_Rat]

No. I don't think he flip-flopped. He is being consistent. He is accepting the fact that because companies rely 100% on Treasury's money all rewards should go to taxpayers and none to shareholders. However, he is -and has been- simultaneously saying that this situation is no longer useful/needed/healthy or safe. And he has been more than clear saying taxpayers are at risk with the current set up.

 

From this line of thought he infers:

 

a) companies need their own capital for their existence and stop relying on Treasury.

b) once that is accomplished rewards can be shared among all shareholders (being Treasury one of them, potentially).

 

I am adding b) as his next line of thought.

 

Briefly, he says:

 

'The current set up is legit. But has lead to a risky situation and must be changed.'

 

He is not judging the NWS directly. Only accepting the court outcomes even though his statements reflect its unhealthiness.

 

Maybe he is trying to push things to the limit to force an outcome? The closer we get to a draw, the more politicians will become believers.

 

Please share the quote. I haven't read anything even close to it.

 

I think Mnuchin wants one thing, and one thing only. He wants to remove the treasury from picture and have FnF's debt guaranteed by private interests. That's it. He will take any and all suggestions about how to better handle FnF fate but that's not his priority.

 

Of course he has also Freudian slipped statements regarding our freedom, as that seems most prudent because the govt profits greatly, but he can be swayed, if not already. But that doesn't matter given how the democrats control both houses and the pres. They DO want FnF and control over housing finance and will likely get it.

 

I think our wait ends with draw. No politician wants a continuation of bailouts. Until then we're in hiatus.

[investorG]

the current mnuchin defenders are off base imo.

 

he is dirtying his hands with the stench of the NWS because he is acting weak overall and chooses not to risk upsetting congress, rather than taking the bull by the horns and saying he won't stand for theft.  moreover he hides behind some spokeswoman instead of saying it himself. 

 

he still has great potential.  my hopes for 2017 for him were not high --- we understand his leverage increases in jan-18.  all he had to do this year was stop the sweep.  it is what it is, my expectations were wrong.

 

good luck everyone! 

[rros]

No. I don't think he flip-flopped. He is being consistent. He is accepting the fact that because companies rely 100% on Treasury's money all rewards should go to taxpayers and none to shareholders. However, he is -and has been- simultaneously saying that this situation is no longer useful/needed/healthy or safe. And he has been more than clear saying taxpayers are at risk with the current set up.

 

From this line of thought he infers:

 

a) companies need their own capital for their existence and stop relying on Treasury.

b) once that is accomplished rewards can be shared among all shareholders (being Treasury one of them, potentially).

 

I am adding b) as his next line of thought.

 

Briefly, he says:

 

'The current set up is legit. But has lead to a risky situation and must be changed.'

 

He is not judging the NWS directly. Only accepting the court outcomes even though his statements reflect its unhealthiness.

 

Maybe he is trying to push things to the limit to force an outcome? The closer we get to a draw, the more politicians will become believers.

 

Please share the quote. I haven't read anything even close to it.

 

I think Mnuchin wants one thing, and one thing only. He wants to remove the treasury from picture and have FnF's debt guaranteed by private interests. That's it. He will take any and all suggestions about how to better handle FnF fate but that's not his priority.

Please share the quote. I haven't read anything even close to it.

 

Nobody knows what's going on. So far, we have all been tools.

[Luke 532]

Hmmm...

 

Zachary Warmbrodt tweet...

It’s 10 p.m., and members of the House Financial Services Committee are nearly yelling at each other about Fannie and Freddie

[muscleman]

Hmmm...

 

Zachary Warmbrodt tweet...

It’s 10 p.m., and members of the House Financial Services Committee are nearly yelling at each other about Fannie and Freddie

 

What are they yelling about? His prior twits are mostly about the progress of the CHOICE ACT.  The only FnF related items are FHFA director's removal at will and some annual study about FnF "privatization" (Which is different from what we think privatization means. As another member pointed out, his privatization means killing and replacing FnF).

 

 

Sometimes Congress has live streams of the floor. I wonder if we could see what's going on there.  ::)

 

 

[Desert_Rat]

No. I don't think he flip-flopped. He is being consistent. He is accepting the fact that because companies rely 100% on Treasury's money all rewards should go to taxpayers and none to shareholders. However, he is -and has been- simultaneously saying that this situation is no longer useful/needed/healthy or safe. And he has been more than clear saying taxpayers are at risk with the current set up.

 

From this line of thought he infers:

 

a) companies need their own capital for their existence and stop relying on Treasury.

b) once that is accomplished rewards can be shared among all shareholders (being Treasury one of them, potentially).

 

I am adding b) as his next line of thought.

 

Briefly, he says:

 

'The current set up is legit. But has lead to a risky situation and must be changed.'

 

He is not judging the NWS directly. Only accepting the court outcomes even though his statements reflect its unhealthiness.

 

Maybe he is trying to push things to the limit to force an outcome? The closer we get to a draw, the more politicians will become believers.

 

Please share the quote. I haven't read anything even close to it.

 

I think Mnuchin wants one thing, and one thing only. He wants to remove the treasury from picture and have FnF's debt guaranteed by private interests. That's it. He will take any and all suggestions about how to better handle FnF fate but that's not his priority.

Please share the quote. I haven't read anything even close to it.

 

Nobody knows what's going on. So far, we have all been tools.

 

He has absolutely stated he wants to remove treasury from picture but not once said shareholders should be left out of picture. I'll concede that I should have used "in my opinion" but you were straight out pulling your opinion from your butt. He's said nothing even close to your statement, and if he had, these preferreds would be trading far lower today.

 

[Desert_Rat]

Love me some democrats  https://twitter.com/DoNotLose/status/859628827647016960

[Luke 532]

Love me some democrats  https://twitter.com/DoNotLose/status/859628827647016960

 

Wow, Zachary wasn't kidding on the shouting thing. Thanks for posting, Desert. Good stuff. 

 

This is from Capuano though not sure if it's from yesterday or not...

[SnarkyPuppy]

Amazing the action on the preferreds past couple of days.  Mr. Market reacting exactly the opposite of how I would have guessed based on Monday mornings comments on Fox.