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

[beaufort]

The Stevens/Howard exchange on the Howard blog has been taken down.  Hopefully there is an opportunity for Howard to achieve progress on the MBAs position in their private conversation to be arranged by email, according to the taken down posts.  Of course, it is difficult to get a person to believe something, when his wallet size depends on him believing the polar opposite. 

[Guest cherzeca]

@beaufort merkhet others

 

aren't the MBA and the ICBA plans essentially the two main plans being considered by the senate banking committee?  i understand that there have been prior proposals by warner/crapo/johnson but those went nowhere and as far as i can tell the committee doesnt seem to be going back to them.

 

if i am right, then ICBA aligning with Moelis's Blueprint may be a big deal, just from a political optics point of view.  you would think that the democrats would favor ICBA over MBA, again from a purely political point of view.  having watt spar with corker over GSE capital is another interesting political tea leaf.

[Guest cherzeca]

The Stevens/Howard exchange on the Howard blog has been taken down.  Hopefully there is an opportunity for Howard to achieve progress on the MBAs position in their private conversation to be arranged by email, according to the taken down posts.  Of course, it is difficult to get a person to believe something, when his wallet size depends on him believing the polar opposite.

 

i suspect that anything coming out of the senate banking committee will be something of a compromise.  whether that compromise proposal ever gets enacted is another question.  so seeing howard and stevens discussing things face to face is a positive imo, as it might result in MBA getting closer to accepting some compromise closer to the Blueprint than otherwise.

[rros]

The Stevens/Howard exchange on the Howard blog has been taken down.  Hopefully there is an opportunity for Howard to achieve progress on the MBAs position in their private conversation to be arranged by email, according to the taken down posts.  Of course, it is difficult to get a person to believe something, when his wallet size depends on him believing the polar opposite.

 

i suspect that anything coming out of the senate banking committee will be something of a compromise.  whether that compromise proposal ever gets enacted is another question.  so seeing howard and stevens discussing things face to face is a positive imo, as it might result in MBA getting closer to accepting some compromise closer to the Blueprint than otherwise.

Chris, aren't you afraid of a backlash by some Senators? Maybe they (Corker et al.) view this as their last chance to kill shareholders and go for a David Stevens alternative with a few added tricks. I do expect bad news from the senate banking committee. But could be emotional inertia...

[merkhet]

@beaufort merkhet others

 

aren't the MBA and the ICBA plans essentially the two main plans being considered by the senate banking committee?  i understand that there have been prior proposals by warner/crapo/johnson but those went nowhere and as far as i can tell the committee doesnt seem to be going back to them.

 

if i am right, then ICBA aligning with Moelis's Blueprint may be a big deal, just from a political optics point of view.  you would think that the democrats would favor ICBA over MBA, again from a purely political point of view.  having watt spar with corker over GSE capital is another interesting political tea leaf.

 

It's tough to tell. Having the ICBA come out in support of the Moelis plan was definitely good, but the Senate Banking Committee could honestly go any direction it wants to with this. It's possible that we get some sort of compromise plan between the Moelis & MBA POVs, but it's not immediately clear what that would look like.

[Guest cherzeca]

@beaufort merkhet others

 

aren't the MBA and the ICBA plans essentially the two main plans being considered by the senate banking committee?  i understand that there have been prior proposals by warner/crapo/johnson but those went nowhere and as far as i can tell the committee doesnt seem to be going back to them.

 

if i am right, then ICBA aligning with Moelis's Blueprint may be a big deal, just from a political optics point of view.  you would think that the democrats would favor ICBA over MBA, again from a purely political point of view.  having watt spar with corker over GSE capital is another interesting political tea leaf.

 

It's tough to tell. Having the ICBA come out in support of the Moelis plan was definitely good, but the Senate Banking Committee could honestly go any direction it wants to with this. It's possible that we get some sort of compromise plan between the Moelis & MBA POVs, but it's not immediately clear what that would look like.

 

i wonder if a compromise could be reached for a two-fold path: 1) reform GSEs along the lines of the moelis Blueprint, and 2) also set up a catastrophic govt guaranty program for private label securitizations.

 

this gives MBA an alternative to the GSEs that they seem to want, and a govt guaranty for that alternative, although each PLS would have to fund that guaranty from its own cash flow, and the guaranty would only kick in after financial crisis type losses have occurred.

 

i suppose the guaranteed PLS would have to submit to fhfa/treasury regulation as well, but i dont think MBA would object to that.

 

[merkhet]

I suppose that could be accomplished by taking out the "SPSA residual guaranty" (i.e. the "government capital" that sits on top of the private capital stack from the presentation) from the Moelis blueprint and turning that into some sort of a "commitment fee" funded guaranty mechanism that is accessible to everyone, including the reformed Fannie & Freddie.

[Guest cherzeca]

I suppose that could be accomplished by taking out the "SPSA residual guaranty" (i.e. the "government capital" that sits on top of the private capital stack from the presentation) from the Moelis blueprint and turning that into some sort of a "commitment fee" funded guaranty mechanism that is accessible to everyone, including the reformed Fannie & Freddie.

 

this would meet MBA halfway, by providing treasury support for alternative monoline guarantors, which could be set up by banks in addition to the moelis blueprint-reformed GSEs.

[merkhet]

I suppose that could be accomplished by taking out the "SPSA residual guaranty" (i.e. the "government capital" that sits on top of the private capital stack from the presentation) from the Moelis blueprint and turning that into some sort of a "commitment fee" funded guaranty mechanism that is accessible to everyone, including the reformed Fannie & Freddie.

 

this would meet MBA halfway, by providing treasury support for alternative monoline guarantors, which could be set up by banks in addition to the moelis blueprint-reformed GSEs.

 

It only sort of fixes MBA's issue, though, because it would be enormously difficult to start up a private label security business while Fannie and Freddie are around. Effectively, it is a cosmetic compromise.

[waynepolsonAtoZ]

The ICBA was key to getting Dodd Frank passed. https://www.washingtonpost.com/business/economy/act-of-congress-how-barney-frank-foiled-the-banking-lobby-to-form-a-new-financial-watchdog/2013/05/05/94d93ed2-b0eb-11e2-9a98-4be1688d7d84_story.html

 

Not sure what role ICBA will play in 2017 though.

[Guest cherzeca]

I suppose that could be accomplished by taking out the "SPSA residual guaranty" (i.e. the "government capital" that sits on top of the private capital stack from the presentation) from the Moelis blueprint and turning that into some sort of a "commitment fee" funded guaranty mechanism that is accessible to everyone, including the reformed Fannie & Freddie.

 

this would meet MBA halfway, by providing treasury support for alternative monoline guarantors, which could be set up by banks in addition to the moelis blueprint-reformed GSEs.

 

It only sort of fixes MBA's issue, though, because it would be enormously difficult to start up a private label security business while Fannie and Freddie are around. Effectively, it is a cosmetic compromise.

 

quite true, which is why MBA wants GSEs in receivership. but the senate banking committee has had years to do MBA's bidding to no avail. so maybe MBA needs to reset its objectives

[orthopa]

I also think an important part of the blueprint is that it can be done without input from congress by Mnuchin and Watt. Congress and the Senate Banking Committee may never even get a chance to tweak it.  Why/how could that happen?

 

1. Congress as mentioned has a lot on its plate and GSE reform is becoming urgent but will it be passed by both houses of congress and signed by Trump?

 

2. Mnuchin has not ruled out acting alone twice and Watt said he may have to dance. Blueprint slides in nicely here.

 

3. Watt may start to act alone and discussed in blueprint with holding divs.

 

The GSE's have been reformed significantly already and the closest bailout examples of AIG and Ally were processed alone by Treasury and went very smoothly.

 

Would a plan like MBAs be able to be done by FHFA/Treasury without input from congress?

[Guest cherzeca]

"Would a plan like MBAs be able to be done by FHFA/Treasury without input from congress?"

 

no.  MBA replaces GSEs with new presumably bank sponsored monolines.  needs legislation

[beaufort]

"quite true, which is why MBA wants GSEs in receivership. but the senate banking committee has had years to do MBA's bidding to no avail. so maybe MBA needs to reset its objectives"

 

The fixes discussed here are what might be called a 'reasonable' gesture towards the MBA and its masters.

 

I have been thinking about the following point.  If you are Mnuchin and Watt, why are you going to be reasonable when you can have administrative reform? 

 

I am not trying to be difficult.  Mnuchin and Watt have spent their lives building their reputations.  Do they want to be stuck with a result that potentially impairs their professional reputations moving forward for nothing?

 

The administrative reform train is leaving.  That is a point that the MBA, Corker et al have to adjust to. 

 

As Mnuchin has said, for years FnF have worked well.  They accomplish significant social good.  They facilitate the upward mobilization of the lower and middle income households.  Why blow it?

 

Edit:

 

I also accept cherzeca your point that there are many ways to skin a cat (made on Howard blog).  If the skinning can be done with FnF largely as is, I can see administrative reform incorporating it.

 

 

 

[Guest cherzeca]

"quite true, which is why MBA wants GSEs in receivership. but the senate banking committee has had years to do MBA's bidding to no avail. so maybe MBA needs to reset its objectives"

 

The fixes discussed here are what might be called a 'reasonable' gesture towards the MBA and its masters.

 

I have been thinking about the following point.  If you are Mnuchin and Watt, why are you going to be reasonable when you can have administrative reform? 

 

I am not trying to be difficult.  Mnuchin and Watt have spent their lives building their reputations.  Do they want to be stuck with a result that potentially impairs their professional reputations moving forward for nothing?

 

The administrative reform train is leaving.  That is a point that the MBA, Corker et al have to adjust to. 

 

As Mnuchin has said, for years FnF have worked well.  They accomplish significant social good.  They facilitate the upward mobilization of the lower and middle income households.  Why blow it?

 

Edit:

 

I also accept cherzeca your point that there are many ways to skin a cat (made on Howard blog).  If the skinning can be done with FnF largely as is, I can see administrative reform incorporating it.

 

i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.  i think he wants to appear to congress like a working partner, and he may eventually work with congress to achieve "reasonable gesture" of accommodation with those in congress that would side with MBA.  my bottom line is that the passage of time is no friend of MBA and those in congress that would promote the MBA proposal, and that the thoroughness and quality of the moelis blueprint has to put MBA and its friends in congress on the defensive.  if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed

[beaufort]

I agree with the above.

[waynepolsonAtoZ]

[i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.... if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed.]

 

I realize it's your job to advocate for the Moelis plan, but I have to admit I'm a little bit skeptical.

 

Moelis is slow to deal with relisting and dividend restoration, probably to be palatable to the "optics."

 

Delisting caused banks and traditional fiduciary investors to exit FnF investments, leaving hedge funds to invest in the GSEs. The "beltway boys" use this as a way to try to disenfranchise GSE equity investors from participating in the GSE reform process.

 

Waiting on dividend restoration makes achieving the Moelis price targets a bit difficult.

 

Corker and the rest of the beltway boys have done everything to keep the GSE equity investors out of the process.

 

There are encouraging signs with respect to Watt. With Mnuchin, it's a lot more ambiguous.

 

 

[waynepolsonAtoZ]

There is also the pending debt crisis. Can the Rs plausibly take away the NWS from Tsy?https://newrepublic.com/article/143144/debt-limit-nightmares-coming-true

 

The theory was that the Trump error would be good for GSE equity investors. LOL.

[orthopa]

"quite true, which is why MBA wants GSEs in receivership. but the senate banking committee has had years to do MBA's bidding to no avail. so maybe MBA needs to reset its objectives"

 

The fixes discussed here are what might be called a 'reasonable' gesture towards the MBA and its masters.

 

I have been thinking about the following point.  If you are Mnuchin and Watt, why are you going to be reasonable when you can have administrative reform? 

 

I am not trying to be difficult.  Mnuchin and Watt have spent their lives building their reputations.  Do they want to be stuck with a result that potentially impairs their professional reputations moving forward for nothing?

 

The administrative reform train is leaving.  That is a point that the MBA, Corker et al have to adjust to. 

 

As Mnuchin has said, for years FnF have worked well.  They accomplish significant social good.  They facilitate the upward mobilization of the lower and middle income households.  Why blow it?

 

Edit:

 

I also accept cherzeca your point that there are many ways to skin a cat (made on Howard blog).  If the skinning can be done with FnF largely as is, I can see administrative reform incorporating it.

 

i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.  i think he wants to appear to congress like a working partner, and he may eventually work with congress to achieve "reasonable gesture" of accommodation with those in congress that would side with MBA.  my bottom line is that the passage of time is no friend of MBA and those in congress that would promote the MBA proposal, and that the thoroughness and quality of the moelis blueprint has to put MBA and its friends in congress on the defensive.  if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed

 

Agree and its semantics but Mnuchin has said he wanted to "Fix Fannie". Blueprint does this.

[orthopa]

[i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.... if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed.]

 

I realize it's your job to advocate for the Moelis plan, but I have to admit I'm a little bit skeptical.

 

Moelis is slow to deal with relisting and dividend restoration, probably to be palatable to the "optics."

 

Delisting caused banks and traditional fiduciary investors to exit FnF investments, leaving hedge funds to invest in the GSEs. The "beltway boys" use this as a way to try to disenfranchise GSE equity investors from participating in the GSE reform process.

 

Waiting on dividend restoration makes achieving the Moelis price targets a bit difficult.

 

Corker and the rest of the beltway boys have done everything to keep the GSE equity investors out of the process.

 

There are encouraging signs with respect to Watt. With Mnuchin, it's a lot more ambiguous.

 

Why is is cherzeca's "job"?

 

Secondly I think we need to make sure shareholders rights are respected way before we worry about a div. That has been hard enough to assure let alone any sweeteners. No reason to get greedy IMO.

[Midas79]

There is also the pending debt crisis. Can the Rs plausibly take away the NWS from Tsy?https://newrepublic.com/article/143144/debt-limit-nightmares-coming-true

 

The theory was that the Trump error would be good for GSE equity investors. LOL.

 

What are the chances Corker and others try to slip a rider into any debt ceiling bill to quash administrative GSE reform? They have to be at least somewhat spooked by Watt's hearing and Carson's language about shareholders.

 

I would think the chances are pretty high. A rider can tie Watt and Mnuchin's hands pretty tightly.

[beaufort]

How can Watt''s hands be tied (directly)?  I understand that Mnuchin can put pressure on him and not make an administrative deal.  Capital can start accumulating on the balance sheet though.

[Desert_Rat]

There is also the pending debt crisis. Can the Rs plausibly take away the NWS from Tsy?https://newrepublic.com/article/143144/debt-limit-nightmares-coming-true

 

The theory was that the Trump error would be good for GSE equity investors. LOL.

 

Except this admin has specific priorities (build the freaking wall, for christ's sake; for one) that $100b would resolve. I've also read that Trump isn't much a balanced budget guy. Probably because he's aware today's ridiculously low interest on that debt makes it free money, but for whatever reason it doesn't appear as if he's all that concerned about it.

[Desert_Rat]

[i am just trying to rationalize mnuchin going from a (seemingly) gung ho quick (administrative) solution early on to a more deferential posture now.... if mnuchin and watt want to go with an administrative reform, the blueprint is ready to be adopted and executed.]

 

I realize it's your job to advocate for the Moelis plan, but I have to admit I'm a little bit skeptical.

 

Moelis is slow to deal with relisting and dividend restoration, probably to be palatable to the "optics."

 

Delisting caused banks and traditional fiduciary investors to exit FnF investments, leaving hedge funds to invest in the GSEs. The "beltway boys" use this as a way to try to disenfranchise GSE equity investors from participating in the GSE reform process.

 

Waiting on dividend restoration makes achieving the Moelis price targets a bit difficult.

 

Corker and the rest of the beltway boys have done everything to keep the GSE equity investors out of the process.

 

There are encouraging signs with respect to Watt. With Mnuchin, it's a lot more ambiguous.

 

Why is is cherzeca's "job"?

 

Secondly I think we need to make sure shareholders rights are respected way before we worry about a div. That has been hard enough to assure let alone any sweeteners. No reason to get greedy IMO.

 

Dividends. LOL. Not going to happen, ever. Not with today's equity anyway. Quality corporate preferreds are < 6% yet FNMAS' is going to remain, what, 10%? No.

 

 

[Guest cherzeca]

There is also the pending debt crisis. Can the Rs plausibly take away the NWS from Tsy?https://newrepublic.com/article/143144/debt-limit-nightmares-coming-true

 

The theory was that the Trump error would be good for GSE equity investors. LOL.

 

What are the chances Corker and others try to slip a rider into any debt ceiling bill to quash administrative GSE reform? They have to be at least somewhat spooked by Watt's hearing and Carson's language about shareholders.

 

I would think the chances are pretty high. A rider can tie Watt and Mnuchin's hands pretty tightly.

 

i agree corker may try this.  i note that mnuchin has asked for a "clean" debt raise.  no spending cuts implies also no other BS