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

[Guest cherzeca]

i'm guessing that "some" GSE shareholders getting value means those who are preNWS shareholders.  if so this wont fly.

 

When did Ackman build his common stake? He was singing the praises of Corker and Warner not long ago.

 

post NWS (like almost everybody else...i think perry is the only one to build much pre-NWS). 

[Luke 532]

https://www.bloomberg.com/amp/news/articles/2017-12-07/lawmakers-plans-to-overhaul-fannie-and-freddie-come-into-focus?__twitter_impression=true

 

Under the proposal, preferred shareholders of Fannie and Freddie could be made whole or close to it, depending on the final outlines of the transition, the people said. But common shareholders may not fare as well, they said. Whether and how shareholders get compensated in the transition to the new system is still an open question. Investors in the companies include several prominent hedge funds.

[Guest cherzeca]

https://www.bloomberg.com/amp/news/articles/2017-12-07/lawmakers-plans-to-overhaul-fannie-and-freddie-come-into-focus?__twitter_impression=true

 

Under the proposal, preferred shareholders of Fannie and Freddie could be made whole or close to it, depending on the final outlines of the transition, the people said. But common shareholders may not fare as well, they said. Whether and how shareholders get compensated in the transition to the new system is still an open question. Investors in the companies include several prominent hedge funds.

 

this is unambiguously favorable to GSEs, although the draft bill is likely too sketchy in transition to be implementable (committee staff usually are academics without sufficient real world experience to understand how to get anything complex done).  this is only a start, but it sounds better than the last corker/warner POS

[SnarkyPuppy]

https://www.bloomberg.com/amp/news/articles/2017-12-07/lawmakers-plans-to-overhaul-fannie-and-freddie-come-into-focus?__twitter_impression=true

 

Under the proposal, preferred shareholders of Fannie and Freddie could be made whole or close to it, depending on the final outlines of the transition, the people said. But common shareholders may not fare as well, they said. Whether and how shareholders get compensated in the transition to the new system is still an open question. Investors in the companies include several prominent hedge funds.

 

High five

[Midas79]

"Made whole" = par for junior prefs? "Some shareholders" = junior pref holders?

 

Those are the obvious bull conclusions to jump to, but "made whole" = "only compensated for losses, if any" and "some shareholders" = "those who have continuously held shares since before the NWS (or even conservatorship)" also fit.

[rros]

Amazing how nothing leaked given what is at stake.

[orthopa]

My own biased interpretation of some shareholders is jr preferred and made whole IMO would be par or close to it. Why? Lawsuits go away, Paulson, Berkowitz, Ackman(depending on how much preferred he has now) are happy and you take the combative nature of the outcome away to a large degree. They start praising the bill, Mnuchin adds his two cents and works with legislators as promised and we go on our merry way. Easy to prime the pump is sneak out the politico/bloomberg piece and see how the market/investors respond.

 

The common has always been a big crap shoot and has had little representation by those who really matter ( see above). At 20% of par before trading tomorrow is 500% upside not enough when compared to the substantial risk common represents? Even more so after reading the bloomberg piece. Hopefully we see the preferred spike tomorrow.

 

Who speaks out loudly for the common if they get hosed and what leg to stand on do they have if congress drafts legislation that "upholds the contract" as Berkowitz has wanted.

 

You now have the 2 of the largest previous opponents of shareholders now switching sides with mnuchin etc. Hensarling is toast.

 

 

[Guest cherzeca]

My own biased interpretation of some shareholders is jr preferred and made whole IMO would be par or close to it. Why? Lawsuits go away, Paulson, Berkowitz, Ackman(depending on how much preferred he has now) are happy and you take the combative nature of the outcome away to a large degree. They start praising the bill, Mnuchin adds his two cents and works with legislators as promised and we go on our merry way. Easy to prime the pump is sneak out the politico/bloomberg piece and see how the market/investors respond.

 

The common has always been a big crap shoot and has had little representation by those who really matter ( see above). At 20% of par before trading tomorrow is 500% upside not enough when compared to the substantial risk common represents? Even more so after reading the bloomberg piece. Hopefully we see the preferred spike tomorrow.

 

Who speaks out loudly for the common if they get hosed and what leg to stand on do they have if congress drafts legislation that "upholds the contract" as Berkowitz has wanted.

 

You now have the 2 of the largest previous opponents of shareholders now switching sides with mnuchin etc. Hensarling is toast.

 

as best as i can tell ackman is all common (derivatives). so unless corker pulled a switheroo on ackman, these reporters are underestimating common's return

[SnarkyPuppy]

My own biased interpretation of some shareholders is jr preferred and made whole IMO would be par or close to it. Why? Lawsuits go away, Paulson, Berkowitz, Ackman(depending on how much preferred he has now) are happy and you take the combative nature of the outcome away to a large degree. They start praising the bill, Mnuchin adds his two cents and works with legislators as promised and we go on our merry way. Easy to prime the pump is sneak out the politico/bloomberg piece and see how the market/investors respond.

 

The common has always been a big crap shoot and has had little representation by those who really matter ( see above). At 20% of par before trading tomorrow is 500% upside not enough when compared to the substantial risk common represents? Even more so after reading the bloomberg piece. Hopefully we see the preferred spike tomorrow.

 

Who speaks out loudly for the common if they get hosed and what leg to stand on do they have if congress drafts legislation that "upholds the contract" as Berkowitz has wanted.

 

You now have the 2 of the largest previous opponents of shareholders now switching sides with mnuchin etc. Hensarling is toast.

 

Largely agree but having trouble reconciling Ackman's recent comments (praising corker/warner and related legislation) and his position being primarily common stock.  Unless he has subsequently substantially swapped his stake- which I don't think is very likely and could be easily interpreted as trading on material non public information

[no_free_lunch]

This seems big to me.  Not a done deal but a step in the right direction and welcome change after failing litigation. The preferreds willl have to move up tomorrow or I am doubling down.

 

Found this as well, sorry if it has been reposted.  This thread has blown up a bit.

 

Hensarling said it is politically inevitable that any reform package will include a government guarantee of mortgage bonds like those issued by Fannie Mae and Freddie Mac, the government-backed enterprises that were bailed out after the housing collapse. The companies are currently wards of the state, devoid of capital and reliant on a $258 billion taxpayer lifeline they might need to tap as early as next year.

 

"I don’t want a government guarantee, I don’t think we need a government affordable housing program but in surveying the political landscape I know they will exist in any bipartisan effort," Hensarling told POLITICO. "At the end of the day I'm here to make progress."

 

Speaking at a conference sponsored by the National Association of Realtors and S&P Global, Hensarling endorsed a plan from the Milken Institute authored by Edward DeMarco and Michael Bright. DeMarco, former acting director of the Federal Housing Finance Agency, now leads the Housing Policy Council at the Financial Services Roundtable. Bright is executive vice president at Ginnie Mae, the government corporation that stands behind mortgages backed by the Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture.

 

https://www.politico.com/story/2017/12/06/hensarling-signals-breakthrough-in-mortgage-reform-208774

 

[merkhet]

I'm surprised at the comments about the commons considering Ackman's recent kind words for Corker/Warner. I would note though that one possible interpretation is that common won't be "made whole" to their pre-conservatorship levels (i.e. $75 per share) so they "may not fare as well."

[SnarkyPuppy]

I'm surprised at the comments about the commons considering Ackman's recent kind words for Corker/Warner. I would note though that one possible interpretation is that common won't be "made whole" to their pre-conservatorship levels (i.e. $75 per share) so they "may not fare as well."

 

+1

[Luke 532]

Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

[rros]

Maybe I am interpreting this wrong but this bill is only about stopping all FF's outflows of money. It says, while not paying dividends do not pay contributions to the housing funds. In other words, keep all the money with the companies. So the bill has been written assuming dividends will also stop. Is this correct?

[orthopa]

I'm surprised at the comments about the commons considering Ackman's recent kind words for Corker/Warner. I would note though that one possible interpretation is that common won't be "made whole" to their pre-conservatorship levels (i.e. $75 per share) so they "may not fare as well."

 

I can see made whole as in a target ie par. What is the made whole target for common? Can be any number I guess. Secondly there was some talk in the thread about the huge volume spikes in the preferred FNMAS  and FNMAH in october. Very well could have been Ackman et al. Some here thought it her was it was berkos clients liquidating. A

[investorG]

Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

 

hmmm. lots to think about here.  especially since we don't know what mnuchin wants.

 

on one hand, he thinks extending jumpstart for a year is fine since he really does want to work with congress and avoid friction with the Republicans.

 

on the other hand, he could recoil from this, realizing he loses leverage in negotiations in 2018, and play chicken with Congress if they resist completing the govt funding or tax reform over this. he might also want to settle lawsuits with a 4th amendment, and this could scuttle that plan.

 

there's not a lot of volume in the lower price preferreds which tells me that the mkt doesn't fully buy this joe light article.

[orthopa]

Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

 

hmmm. lots to think about here.  especially since we don't know what mnuchin wants.

 

on one hand, he thinks extending jumpstart for a year is fine since he really does want to work with congress and avoid friction with the Republicans.

 

on the other hand, he could recoil from this, realizing he loses leverage in negotiations in 2018, and play chicken with Congress if they resist completing the govt funding or tax reform over this. he might also want to settle lawsuits with a 4th amendment, and this could scuttle that plan.

 

there's not a lot of volume in the lower price preferreds which tells me that the mkt doesn't fully buy this joe light article.

 

Lets see what the end of the day volume is on the preferred. Put in an order for the less liquid preferred and extremely hard to come by. Who would be selling with this news at these prices?

[orthopa]

Here is another thing. https://www.nytimes.com/2017/12/03/us/politics/government-shutdown-republicans-congress-spending.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news&_r=0

 

My thought being they aren't going to give up on the sweep unless they have to. I see a correction coming in terms of the valuation of the preferreds in the market. However, I'm 100 percent out of the FnF preferreds, so take it as you will.

 

Ouch, sorry Wayne.

[Luke 532]

Lorraine Woellert states the obvious... or what should be obvious.

 

Lorraine‏Verified account @Woellert

Replying to @billrad

 

In any scenario involving shares, preferreds will come back first. Commons will be at the end of the line. That’s my best understanding at the moment.

 

[investorG]

Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

 

hmmm. lots to think about here.  especially since we don't know what mnuchin wants.

 

on one hand, he thinks extending jumpstart for a year is fine since he really does want to work with congress and avoid friction with the Republicans.

 

on the other hand, he could recoil from this, realizing he loses leverage in negotiations in 2018, and play chicken with Congress if they resist completing the govt funding or tax reform over this. he might also want to settle lawsuits with a 4th amendment, and this could scuttle that plan.

 

there's not a lot of volume in the lower price preferreds which tells me that the mkt doesn't fully buy this joe light article.

 

Lets see what the end of the day volume is on the preferred. Put in an order for the less liquid preferred and extremely hard to come by. Who would be selling with this news at these prices?

 

I try to think at things from multiple angles.

 

what if the joe light article was simply a way to grease through the jumpstart extension, and ultimately means little?

 

or what if the corker plan pays back preferreds but only over many years, which reduces the NPV?

 

I wouldn't be writing this if conveniently the jumpstart renewal didn't appear 12 hours after the Bloomberg article.

 

[Luke 532]

I try to think at things from multiple angles.

 

what if the joe light article was simply a way to grease through the jumpstart extension, and ultimately means little?

 

That's a healthy way to look at things (from different angles).

 

That certainly could be the case here, but Ackman going out of his way to sing the praises of Corker and Warner is incredibly interesting and makes me lean towards the Light article having some merit.  But I'm biased given my stake in prefs.

 

Seems to be at least 2 bills floating around: Jumpstart extension and revised Corker/Warner that is shareholder friendly (or so it seems). 

 

Going to be a wild ride.

[Guest cherzeca]

why would treasury be cool with a plan that does not redound to common when it owns 80% of common?

[no_free_lunch]

We can speculate but you now have a bloomberg article stating that the preferred's are likely to be made whole or at least mostly whole.  I view this as progress.

[muscleman]

What's going on with the preferreds? Up 30% today. Didn't find any news

[Luke 532]

What's going on with the preferreds? Up 30% today. Didn't find any news

 

LOL, good one!