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

[Desert_Rat]

Good stuff

[waynepolsonAtoZ]

To me, Richard Epstein is bringing up the Alexander Hamilton point, i.e., "speculators" should be treated the same as the original holders vis-a-vis the Federal government paying off the obligations of the states to fund the Revolutionary War.

[Sunrider]

Today's piece by Richard Epstein on Perry vs. Mnuchin: https://www.forbes.com/sites/richardepstein/2017/06/15/mnuchin-v-perrys-disastrous-damage-rules/#10b09b642d2e

 

Maybe Chris/Mekhet can comment - Epstein seems to equate the court's "expectations" with "rights attached to shares". As a layman that seems eminently sensible but given everything else we've seen to date, is that the breach through which yet another course will send its troops by arguing 'sure, the rights transfer, but they should've expected that the rights have no value anymore, hence no loss, no damages, etc.'

 

If that argument were made, of course at least it would be established that there are rights and they did not just end, but I wonder whether this then ends up as a Pyrrhic victory?

Thanks.

[rros]

Today's piece by Richard Epstein on Perry vs. Mnuchin: https://www.forbes.com/sites/richardepstein/2017/06/15/mnuchin-v-perrys-disastrous-damage-rules/#10b09b642d2e

 

Maybe Chris/Mekhet can comment - Epstein seems to equate the court's "expectations" with "rights attached to shares". As a layman that seems eminently sensible but given everything else we've seen to date, is that the breach through which yet another course will send its troops by arguing 'sure, the rights transfer, but they should've expected that the rights have no value anymore, hence no loss, no damages, etc.'

 

If that argument were made, of course at least it would be established that there are rights and they did not just end, but I wonder whether this then ends up as a Pyrrhic victory?

Thanks.

Unfortunately for us, we have not found yet in courts any champion of capitalism. But yes, Epstein raises the AH point of view of "resurrection" where someone's trash may well be another one's treasure. When this idea is killed, not only an exit for the original holder is eliminated (no buyers anymore) but also the essence of why participants in markets are willing to take risks. The chilling effects are absolutely obvious for those with their "capitalists" glasses on!

 

Judges and their moral high ground may remain oblivious to how markets really function. Or worse, may abhor this point of view.

[Guest cherzeca]

@beaufort

 

On road but if memory serves moelis stated in blueprint that $6B would remain after 1q payment for both gses

[waynepolsonAtoZ]

"@cherzeca, others, can you post a good source for how much is outstanding to Tsy by Fannie?"

 

I haven't updated this recently, but I thought I would post my draws and senior preferred dividends spreadsheet. What I did was I pulled the draws and dividends into a spreadsheet. I might try to update this over the weekend, not sure.

 

Then, I calculated dividends AS IF the 10% dividend had been paid. As there have been no draws since 2012 or so this was an easy calculation to make. Just reverting back as if 8/17/2012 hadn't happened.

 

Next, I calculated dividends AS IF the dividend rate had been 5% not 10%. Again, pretty easy calculation. This was the approach that Rep. Capuano set forth in his bill.

 

The data is from the FHFA so should be right.

 

https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_1.pdf

 

https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf

 

 

 

FnF_Draws_and_SPDividends.xlsx

[Guest cherzeca]

Hindes Jacobs opposition brief:  http://gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0069.pdf

[Guest cherzeca]

@beaufort

 

On road but if memory serves moelis stated in blueprint that $6B would remain after 1q payment for both gses

 

See p 32 of hindes Jacobs reply brief:  $4.9b for Fnma and $1.1b for fmcc

[Luke 532]

@beaufort

 

On road but if memory serves moelis stated in blueprint that $6B would remain after 1q payment for both gses

 

See p 32 of hindes Jacobs reply brief:  $4.9b for Fnma and $1.1b for fmcc

 

"If such an approach were taken, Treasury’s liquidation preference would be reduced to $4.9 billion with respect to Fannie and $1.1 billion with respect to Freddie following the

dividend payments made as a result of the Companies’ first quarter 2017 financial results."

 

The dividend payments made as a result of Q1 would be the upcoming payment on June 30, 2017, correct?  If so, then $6.0 billion still remains after the June payment.

[beaufort]

4.9B less the 4-4.5B referenced by cherzeca in RBS settlement funds for FNMA.  1.1B for FMCC. 

 

 

 

 

 

 

 

 

 

 

 

[waynepolsonAtoZ]

I'd love to see the calculations behind the Jacobs Hindes numbers.

 

Here are my calculations. I've updated the spreadsheet I posted yesterday.

 

For Freddie, cumulative draws have been $71.336 b. Last draw was 2nd Q2012.

 

Actual cum. dividends are $108.158 b so dividends have exceeded draws by $36.822 b. However, the original deal doesn't allow repayment of principal.

 

So, "what if" the 10% had continued in place.

 

That's an easy calculation to make because draws haven't occurred. So you just continue the $1.808 d payment each quarter.

 

In this "what if," dividends of $56.298 billion would have been paid instead of the $108.158 b. The difference between $108.158 b and $56.298 would then be viewed as repayment of principal. That amount is $51.860 b. Easy as pie.

 

Problem. Draws are $71.336 b so $19.476 hasn't been repaid in this case.

 

Fannie has the same problem. 

 

FnF_Draws_and_SPDividends_v_2.1.xlsx

[Guest cherzeca]

You have to apply amount in excess of the 10% div each div payment date to repayment of principal which then reduces the principal amount on which the next 10% div amount is calculated. 

[waynepolsonAtoZ]

Point taken. I need to do an amortization schedule. Well, that's why I asked for comments--I knew I was missing something.

 

Thanks!!!

[Seahug]

Sorry for the late replay on this. I don't monitor this as often and mentally have thrown my prefs into a coffee can/safe or whatever. Mostly what's going is noise, who really knows. Companies are profitable, sweep was unfair I just hope it works out and one day I wake up to a 5 bagger.

 

Fairholme had a 31 Mar 2017 filing showing a sale of 3mn FNMAS out of a 62mn position, so down to 59 mn - all numbers approximate.

 

Given the SHLD issues and possible redemptions I can see how there may be this pressure on him to rebalance...

 

There was another series where he sold some.

 

Didn't see this posted yet - Berkowitz sold some prefs in Q1

 

Where did you see that?

 

I think it's the comment below that is confusing at first glance and make it sound like Berkowitz sold some.  But it is a comment from the author, not a quote from Berkowitz.  The author is concerned with the position size, not Berkowitz.

Although I believe Fannie and Freddie investors will be rewarded for their patience in the end, my concern was the size of the Fannie and Freddie position.

[merkhet]

Fairholme had a 31 Mar 2017 filing showing a sale of 3mn FNMAS out of a 62mn position, so down to 59 mn - all numbers approximate.

 

I just checked the annual & mid-annual 2016 reports, and the Series S position was unchanged amongst all three of the funds, and, as far as I know, Fairholme doesn't report the preferred shares on their 13-F filings anymore.

 

Do you happen to have a link to the filing or remember where you saw it?

[TonyG]

https://www.bloomberg.com/news/videos/2017-06-19/why-bruce-berkowitz-still-likes-stocks-others-hate-video

 

fannie freddie talk starts round 24:50. said they haven't yet talked to this administration about f&f but yet they had talked to the last administration. kinda seemed weird

[rros]

Fairholme had a 31 Mar 2017 filing showing a sale of 3mn FNMAS out of a 62mn position, so down to 59 mn - all numbers approximate.

 

I just checked the annual & mid-annual 2016 reports, and the Series S position was unchanged amongst all three of the funds, and, as far as I know, Fairholme doesn't report the preferred shares on their 13-F filings anymore.

 

Do you happen to have a link to the filing or remember where you saw it?

He raised a good point at the end. If for any reason shares appreciate substantially he must sell to size position. AIG was 60% of his funds at some point and Morningstar kept hitting him with liquidity risks. Perhaps, he sold some prior to the appeals debacle. If we hit the jackpot Bruce B. will have to sell some whether he wants to or not.

[Desert_Rat]

https://www.bloomberg.com/news/videos/2017-06-19/why-bruce-berkowitz-still-likes-stocks-others-hate-video

 

fannie freddie talk starts round 24:50. said they haven't yet talked to this administration about f&f but yet they had talked to the last administration. kinda seemed weird

 

Schatzker explains why this 5-bagger remains a 5-bagger.

[Seahug]

I saw it on bloomberg. BBG makes mistakes once in a while and I didn't check the actual filing. I think he sold another series by a similar amount.

 

Maybe they needed to pay for management fees.

 

Fairholme had a 31 Mar 2017 filing showing a sale of 3mn FNMAS out of a 62mn position, so down to 59 mn - all numbers approximate.

 

I just checked the annual & mid-annual 2016 reports, and the Series S position was unchanged amongst all three of the funds, and, as far as I know, Fairholme doesn't report the preferred shares on their 13-F filings anymore.

 

Do you happen to have a link to the filing or remember where you saw it?

[Guest cherzeca]

joe light reporting that phillips says administration wants an explicit MBS guaranty, and that foreign investors wont buy MBS without it:  https://www.bloomberg.com/news/articles/2017-06-21/bond-market-concerns-could-scuttle-paulson-s-fannie-freddie-plan

 

i am suspicious this is just more tbtf/bond buyer fed PR.  trump signed executive order instructing his administration to end bailouts, and what could be more of a bailout than issuing an explicit guaranty that if the security isnt paid the govt will pay it.  doesnt seem to make sense.

[waynepolsonAtoZ]

Treasury is already getting 10 basis points, used it to fund an extension of unemployment benefits or some such. That lasts probably another 15 years or so. They must want to get more.

 

The interesting thing to me is that the SPSPAs are a more or less explicit backstop to FnF, although it's explicitly not a "guarantee."

 

Is the "explicit backstop" they are talking about something that would begin after the SPSPAs expire in 2028?

[onyx1]

joe light reporting that phillips says administration wants an explicit MBS guaranty, and that foreign investors wont buy MBS without it:  https://www.bloomberg.com/news/articles/2017-06-21/bond-market-concerns-could-scuttle-paulson-s-fannie-freddie-plan

 

i am suspicious this is just more tbtf/bond buyer fed PR.  trump signed executive order instructing his administration to end bailouts, and what could be more of a bailout than issuing an explicit guaranty that if the security isnt paid the govt will pay it.  doesnt seem to make sense.

 

 

Unless there is such a large private capital cushion that the UST expects that the backstop will almost never be used.

[rros]

joe light reporting that phillips says administration wants an explicit MBS guaranty, and that foreign investors wont buy MBS without it:  https://www.bloomberg.com/news/articles/2017-06-21/bond-market-concerns-could-scuttle-paulson-s-fannie-freddie-plan

 

i am suspicious this is just more tbtf/bond buyer fed PR.  trump signed executive order instructing his administration to end bailouts, and what could be more of a bailout than issuing an explicit guaranty that if the security isnt paid the govt will pay it.  doesnt seem to make sense.

Even if it is a tbtf/bondholders fed pr, which I agree it may be, there is Calabria to contend with. From his paper co-authored together with Krimminger, Calabria made it clear he doesn't give a dam about bondholders. Neither russian, japanese nor chinese investors. According to the paper, receivership of FF should absolutely entail bondholders taking a big hit. Within this frame, and being chief economist of Pence, extreme protections for bondholders as in full blown government guarantees will never be part of any discussion by this WH. In my view...

 

So I cannot see this piece from Joe Light as having any kind of influence. I am thinking the bondholders' lobbying that had the upper hand during the Obama years, is over.

[waynepolsonAtoZ]

Gary Cohn is bought and paid for by the bond guys of Wall Street. He's the only adult in the room at the White House.

[rros]

Gary Cohn is bought and paid for by the bond guys of Wall Street. He's the only adult in the room at the White House.

So according to this we are in trouble as bond guys would rather have FF nationalized.