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

[Desert_Rat]

I'm skeptical that the senior's will be cancelled. I've been clear on that.

[Midas79]

I'm skeptical that the senior's will be cancelled. I've been clear on that.

 

Ever? I don't see how there can be any path to re-privatization while the senior preferreds exist.

 

 

Side note: I wonder if Moelis & Company's "win-win" proposal involves the warrants being exercised, having the government make more money by keeping the current capital structure intact than if they wipe out the commons.

[Luke 532]

Side note: I wonder if Moelis & Company's "win-win" proposal involves the warrants being exercised, having the government make more money by keeping the current capital structure intact than if they wipe out the commons.

 

I would think so given the following: "while realizing a significant financial gain for the U.S. taxpayer"

 

Although the U.S. taxpayer has made a nice return on dividend payments alone, not counting the warrants.

[SnarkyPuppy]

The senior preferreds will obviously be cancelled. 

 

It's a matter of what the post-reformed GSE structure looks like and how it is capitalized.  There is a strong argument from very smart people working on the assumption that there is no new capital without treating the old capital fairly.  I'm just not convinced.  If you believe this to be systemically true, without a doubt, with 100% certainty, these junior preferreds are a good bet. 

[SnarkyPuppy]

There's just so many unknown future possibilities.  To take what I mean to an extreme, why not cut a deal with large banks + Berkshire Hathaway to privately recapitalize and insure downside?  He's friends with berkowitz, but he also likely has many friends in Wall Street. 

 

Not saying it's going to happen, but I just don't see how you can be confident in the outcome of where this is headed without the legal cases providing margin of safety/floor on the share prices.

[Guest cherzeca]

"I think the point is that you will only find private capital to fill that $100B hole if the capital gets the earnings from the guarantee fee. The government therefore has to stop taking those profits. Now, whether that happens via the existing entities or totally new ones is the big question."

 

agree.  implementing a wholesale transfer of FNF's business to a new entity(ies) is extraordinarily complex and would likely require receivership. totally impractical. apart from that, it's just fine...

 

"Side note: I wonder if Moelis & Company's "win-win" proposal involves the warrants being exercised,..."

 

quite likely.  treasury gets 80% of FnF upside in a workable restructuring, vs 100% of upside with NWS in an unworkable restructuring.  only corker would raise hand for latter

[Midas79]

It turns out that yes, Moelin & Company do suggest that the government exercise the warrant to maximize taxpayer returns while moving on from the unsustainable status quo.

 

https://www.scribd.com/document/348785021/Restoring-Safety-and-Soundness-to-the-GSEs#fullscreen&from_embed

 

I hadn't realized that their proposal had been released like this. Found the link on iHub.

[beaufort]

It looks like Ackman's proposal to me.

[investorG]

It looks like Ackman's proposal to me.

 

the moelis presentation is huge -- these guys are pros -- and I advise paying attention. 

[Luke 532]

Interesting slide...

[Luke 532]

Paraphrased during Q&A: "The steps we lay out can be implemented by FHFA and Treasury without involvement from policymakers, while policymakers work on reforms."

 

Jerome Corsi (InfoWars), Joe Light, and Josh Rosner (among one or two others) asked questions.

[Guest cherzeca]

It looks like Ackman's proposal to me.

 

the moelis presentation is huge -- these guys are pros -- and I advise paying attention.

 

+1

 

it's about time some financial restructuring sanity was introduced in the debate relating to $5T financial entities!

 

the thought occurred to me during the presentation:  this is something that certainly speaks to financial pros like mnuchin and that blackstone guy he hired, whether or not corker/crapo get it

[Guest cherzeca]

It looks like Ackman's proposal to me.

 

basically yes.  and that's because if you present a financial restructuring assignment to financial pros, you will get broad agreement relating to overall structure, with disagreement only emerging as you get granular (as they like to say)

[investorG]

It looks like Ackman's proposal to me.

 

the moelis presentation is huge -- these guys are pros -- and I advise paying attention.

 

+1

 

it's about time some financial restructuring sanity was introduced in the debate relating to $5T financial entities!

 

the thought occurred to me during the presentation:  this is something that certainly speaks to financial pros like mnuchin and that blackstone guy he hired, whether or not corker/crapo get it

 

totally, this is exactly what he's used to seeing at GS -- a tight presentation, hard numbers, and well-rehearsed answers to expected questions.  this plan will be hard to argue against as the debate picks up, and we finally have a hard-core voice on our side in moelis. 

[SnarkyPuppy]

@cherz

 

So you're confident that corker/warner proposals are an impossibility given current state of affairs and requirements for future capital buffers?

 

And if so, the only true risk is timing/recap being kicked down the road

[Guest cherzeca]

It looks like Ackman's proposal to me.

 

the moelis presentation is huge -- these guys are pros -- and I advise paying attention.

 

+1

 

it's about time some financial restructuring sanity was introduced in the debate relating to $5T financial entities!

 

the thought occurred to me during the presentation:  this is something that certainly speaks to financial pros like mnuchin and that blackstone guy he hired, whether or not corker/crapo get it

 

totally, this is exactly what he's used to seeing at GS -- a tight presentation, hard numbers, and well-rehearsed answers to expected questions.  this plan will be hard to argue against as the debate picks up, and we finally have a hard-core voice on our side in moelis.

 

@g

 

you notice how they started off focusing on mnuchin's twin core principles?  this was a presentation all but addressed to mnuchin (and watt).  what MBA ditzes like stevens dont understand is that investment banks will make more money raising capital in this capital raising program than they would make with his stupid proposal

[Guest cherzeca]

@cherz

 

So you're confident that corker/warner proposals are an impossibility given current state of affairs and requirements for future capital buffers?

 

And if so, the only true risk is timing/recap being kicked down the road

 

confident of nothing

[SnarkyPuppy]

@cherz

 

So you're confident that corker/warner proposals are an impossibility given current state of affairs and requirements for future capital buffers?

 

And if so, the only true risk is timing/recap being kicked down the road

 

confident of nothing

 

Hah.  Same.

[DocSnowball]

It looks like Ackman's proposal to me.

 

the moelis presentation is huge -- these guys are pros -- and I advise paying attention.

 

+1

 

it's about time some financial restructuring sanity was introduced in the debate relating to $5T financial entities!

 

the thought occurred to me during the presentation:  this is something that certainly speaks to financial pros like mnuchin and that blackstone guy he hired, whether or not corker/crapo get it

 

+1

Sound outline that could be acceptable to most shareholders and end lawsuits

Nice to see the initiative to put a sensible plan out there - very good example of activist investing

Would need to get past those in the value chain who will not reap the benefits like politicians and big banks

[merkhet]

It's a pretty good plan. Now we wait to see if anyone in the government bites.

 

I'm also interested to see whether anyone else endorses this plan, like the ICBA, etc.

[TwoCitiesCapital]

Interesting slide...

 

Good discussion so far. I dialed in, but kept getting interrupted by work and missed this slide. Was there any mention made behind the though process of equitizing current junior preferred shareholders only to re-issue another 25B in preferreds? Is it simply the rate differential that can be achieved?

[Luke 532]

Interesting slide...

 

Good discussion so far. I dialed in, but kept getting interrupted by work and missed this slide. Was there any mention made behind the though process of equitizing current junior preferred shareholders only to re-issue another 25B in preferreds? Is it simply the rate differential that can be achieved?

 

I didn't hear them discuss that in detail.  Attached is the full presentation.

 

And their website: http://gsesafetyandsoundness.com/

6-1-2017_Safety-and-Soundness-Blueprint.pdf

[Guest cherzeca]

Interesting slide...

 

Good discussion so far. I dialed in, but kept getting interrupted by work and missed this slide. Was there any mention made behind the though process of equitizing current junior preferred shareholders only to re-issue another 25B in preferreds? Is it simply the rate differential that can be achieved?

 

moelis just assumes that if there is a declared holiday for dividends until the capital raise is over, many junior holders will exchange if pricing looks favorable.  this of course assumes that fresh common wont insist on an immediate dividend since a div holiday for junior prevents payment of div to common

[Midas79]

moelis just assumes that if there is a declared holiday for dividends until the capital raise is over, many junior holders will exchange if pricing looks favorable.  this of course assumes that fresh common wont insist on an immediate dividend since a div holiday for junior prevents payment of div to common

 

I have been assuming that there won't be a dividend holiday if there is going to be an equity raise via issuing new commons. Offering a dividend on the common can allow for more aggressive pricing, probably gaining more capital for the companies even with the expense of paying the junior preferred dividends.

[Guest cherzeca]

moelis just assumes that if there is a declared holiday for dividends until the capital raise is over, many junior holders will exchange if pricing looks favorable.  this of course assumes that fresh common wont insist on an immediate dividend since a div holiday for junior prevents payment of div to common

 

I have been assuming that there won't be a dividend holiday if there is going to be an equity raise via issuing new commons. Offering a dividend on the common can allow for more aggressive pricing, probably gaining more capital for the companies even with the expense of paying the junior preferred dividends.

 

this will require subtle IBK skills.  if there can be a sufficient exchange so that the junior pref div amount is small, then maybe a common dividend could be part of package; and if the common div is part of package, then that might incentivize more junior holders to exchange; which will incentivize some junior holders to holdout in order to get bought out. 

 

all typical game theory activity involved in a financial restructuring