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

[no_free_lunch]

The spread between the different series has been closing this week.  FNMAS (high yielder) is basically flat, while FNMAO (low yield) is up about 10%.

[Guest cherzeca]

someone pinned fnmas up at close of day/year.  will make holder's year look a little better

[muscleman]

The spread between the different series has been closing this week.  FNMAS (high yielder) is basically flat, while FNMAO (low yield) is up about 10%.

 

Yeah I noticed that. It seems like the market is getting more aware of the conversion possibility

[Midas79]

Has anything been heard from Sweeney's court about the quick peek and document production?

 

http://www.gselinks.com/Court_Filings/Fairholme/13-465-0394.pdf

 

If the plaintiffs' review started the day after the order (November 10) then adding up all the days after that:

• 21 days for plaintiffs to review the documents
  
• 7 days for plaintiffs to give a list to defendants with which documents they believe should be produced
  
• 21 days for defendants to give a list of documents they believe should still be withheld
  
• 7 days for plaintiffs to file a motion to compel if they cannot come to an agreement with defendants
  

 

gives me a date of January 5 for all of this to have happened. It seems that we have not been apprised of the in-between steps happening thus far. I would think a motion to compel would have been submitted by now if it was to happen at all, and we should have seen that. Does this mean the plaintiffs have the documents they want? Or did the process not start until after November 10, pushing the whole timeline back?

[doughishere]

If Fairholme files a third motion to compel, we won't see that until mid-January, at the earliest.  The timetable under Judge Sweeney's Nov. 9 order gives three of Fairholme's lawyers 21 days to review the documents after the government makes them available in a secure facility.  Fairholme will send the government a list of the documents it wants in the next seven days.  The government has 21 days to review that list.  A ten-day negotiating period follows, and Fairholme then has seven days to file another motion to compel if the government won't give Fairholme the documents it wants.

 

 

Thats what I get. Basically the same. Is the quarterly distribution to the treasury( which was halted)...is that cumulative or do the excess amount over the buffer still go to the treas.?

[Midas79]

If Fairholme files a third motion to compel, we won't see that until mid-January, at the earliest.  The timetable under Judge Sweeney's Nov. 9 order gives three of Fairholme's lawyers 21 days to review the documents after the government makes them available in a secure facility.  Fairholme will send the government a list of the documents it wants in the next seven days.  The government has 21 days to review that list.  A ten-day negotiating period follows, and Fairholme then has seven days to file another motion to compel if the government won't give Fairholme the documents it wants.

 

 

Thats what I get. Basically the same. Is the quarterly distribution to the treasury( which was halted)...is that cumulative or do the excess amount over the buffer still go to the treas.?

 

Oops, I missed the 10-day negotiation. That would make it January 15 adding all the days from November 10. I was also thinking the whole timeline could have moved faster because the plaintiffs didn't have to use every available day.

 

As for the new capital buffer, all money above $3B of net worth for each company still goes to Treasury. It was a one-time withholding that also came with a $3B increase in liquidation preference for Treasury for each company.

[doughishere]

thanks

[rros]

It was a one-time withholding that also came with a $3B increase in liquidation preference for Treasury for each company.

And the elimination of the 600 mill drainage per year. Sea-change.

[Luke 532]

Former FDIC Chairman likes the Moelis plan...

 

"There's a study out by the Moelis Group.  It has very good suggestions, and a lot of people are working hard on it."

[investorG]

I wonder if Mnuchin is on board with the Senate - MBA - Joe Light proposal, working with them behind the scenes.

 

If so, we'll get (or not get) whatever they decide.

 

If not, it's probably tempting for him to wait til 2019 to work with Maxine Waters and Sherrod Brown (or someone similar if he loses) on GSE reform. It's shaping up for a Democratic landslide in November.

[investorG]

Former FDIC Chairman likes the Moelis plan...

 

"There's a study out by the Moelis Group.  It has very good suggestions, and a lot of people are working hard on it."

 

interesting. wish he'd gone further on who 'a lot of people' are.

[orthopa]

https://www.bloomberg.com/news/articles/2018-01-04/fannie-freddie-overhaul-might-mint-hedge-fund-riches-or-losses

 

"This time things could be different. The authors of the latest bill -- Tennessee Republican Bob Corker and Virginia Democrat Mark Warner -- are considering a proposal that could make investors in preferred shares whole or close to it, while owners of common shares could fare worse, said people familiar with the lawmakers’ thinking who asked not to be named because the legislation is still being drafted."

 

Same verbage. Its been reported twice although by same reporter. Does that make it any more true?

[orthopa]

More..."The Federal Housing Finance Agency, which controls Fannie and Freddie, would direct the companies to sell or transfer their assets and then put them in receivership, the people said.

 

In a receivership, funds are available to common shareholders only after covering more senior claims, such as the FHFA’s expenses as a receiver, the government’s securities and preferred shareholders."

 

I looked last Q and in a liquidation scenario there was just enough to cover Jr Preferred and common got nothing. Will have to look at most recent Q.

[Midas79]

Light's piece includes these lines:

 

Some shareholders hired private investigators to dig up dirt on their perceived enemies. Others funded payments to advocacy groups, college professors and nominally independent experts in exchange for publicly supporting their cause in opinion columns.

 

I believe this is a direct shot at the former FDIC chairman's comments mentioned above. Light tweeted this yesterday, not long afterward:

 

https://twitter.com/joelight/status/948593453511970816

 

Light's last piece seemed actually somewhat balanced, but I am now seeing the pattern of him including a token opposing viewpoint at the very end while showing quite a lot of bias at the beginning of the story. Case in point:

 

In the meantime, while investors have received documents through discovery that they said bolstered their lawsuits, every court to rule so far has dismissed their cases.

 

Once again parroting the incorrect view that the Perry appeal was a complete loss.

[Midas79]

More..."The Federal Housing Finance Agency, which controls Fannie and Freddie, would direct the companies to sell or transfer their assets and then put them in receivership, the people said.

 

In a receivership, funds are available to common shareholders only after covering more senior claims, such as the FHFA’s expenses as a receiver, the government’s securities and preferred shareholders."

 

I looked last Q and in a liquidation scenario there was just enough to cover Jr Preferred and common got nothing. Will have to look at most recent Q.

 

I assume that your analysis assumed that the seniors were declared repaid? Because otherwise it seems to me that juniors and common get nothing at all.

 

This would be another reason to own the lower-yielding prefs then. I had thought the "flattening of the curve" of price with respect to dividend yield was due to an anticipated conversion to common only based on par/stated value, but receivership that actually leaves enough money for juniors would be another reason.

[merkhet]

The article reads like the solution will take aspects from Berkowitz' plan, Millstein's plan, and Moelis' plan. As I have expressed to others privately, I want to see the damned language already!

[Luke 532]

The article reads like the solution will take aspects from Berkowitz' plan, Millstein's plan, and Moelis' plan. As I have expressed to others privately, I want to see the damned language already!

 

+1

[orthopa]

More..."The Federal Housing Finance Agency, which controls Fannie and Freddie, would direct the companies to sell or transfer their assets and then put them in receivership, the people said.

 

In a receivership, funds are available to common shareholders only after covering more senior claims, such as the FHFA’s expenses as a receiver, the government’s securities and preferred shareholders."

 

I looked last Q and in a liquidation scenario there was just enough to cover Jr Preferred and common got nothing. Will have to look at most recent Q.

 

I assume that your analysis assumed that the seniors were declared repaid? Because otherwise it seems to me that juniors and common get nothing at all.

 

This would be another reason to own the lower-yielding prefs then. I had thought the "flattening of the curve" of price with respect to dividend yield was due to an anticipated conversion to common only based on par/stated value, but receivership that actually leaves enough money for juniors would be another reason.

 

Correct seniors declared prepaid

[Midas79]

More..."The Federal Housing Finance Agency, which controls Fannie and Freddie, would direct the companies to sell or transfer their assets and then put them in receivership, the people said.

 

In a receivership, funds are available to common shareholders only after covering more senior claims, such as the FHFA’s expenses as a receiver, the government’s securities and preferred shareholders."

 

I looked last Q and in a liquidation scenario there was just enough to cover Jr Preferred and common got nothing. Will have to look at most recent Q.

 

I assume that your analysis assumed that the seniors were declared repaid? Because otherwise it seems to me that juniors and common get nothing at all.

 

This would be another reason to own the lower-yielding prefs then. I had thought the "flattening of the curve" of price with respect to dividend yield was due to an anticipated conversion to common only based on par/stated value, but receivership that actually leaves enough money for juniors would be another reason.

 

Correct seniors declared prepaid

 

Thanks.

 

How do you account for the seniors disappearing from the balance sheet? Just wipe them away and increase accumulated deficit by the same amount, leaving total equity unchanged? In that case Fannie's last 10-Q showed around $3.8B of total equity, only enough to pay off 20% of the $19B in junior prefs. If you don't mind, how did you come to your conclusion?

[investorG]

More..."The Federal Housing Finance Agency, which controls Fannie and Freddie, would direct the companies to sell or transfer their assets and then put them in receivership, the people said.

 

In a receivership, funds are available to common shareholders only after covering more senior claims, such as the FHFA’s expenses as a receiver, the government’s securities and preferred shareholders."

 

I looked last Q and in a liquidation scenario there was just enough to cover Jr Preferred and common got nothing. Will have to look at most recent Q.

 

imo in a liquidation scenario of trillion+ dollar balance sheets, which would likely take many years, predicting npv down to the specific billion-dollar level is lottery-level precision.  a lot would also depend on the warrants, do they go with the new company or legacy; if new company, each $1bn (or lack thereof) is $1 of value to commoners. and if legacy, then $6bn = $1 value.

 

[Guest cherzeca]

The article reads like the solution will take aspects from Berkowitz' plan, Millstein's plan, and Moelis' plan. As I have expressed to others privately, I want to see the damned language already!

 

i also dont deal with smoke and mirrors as well as i do with actual language.  but the actual language isnt even there. for example, according to the article, the section that would seem to deal with the treatment of of the senior pref is blank and pending further discussion.  this basically means to me that the bill is nowhere yet.

 

why it would be that the junior preferred are resuscitated and the common trashed, of which treasury owns 80%, still escapes me. i get that in order to promote competition you have to declaw FnF, but why throw away >$100B in taxpayer value to promote competition when you dont even know if the competition will emerge or promote housing finance as well as it is now with an effective duopoly that can be monitored with utility regulation?

[investorG]

The article reads like the solution will take aspects from Berkowitz' plan, Millstein's plan, and Moelis' plan. As I have expressed to others privately, I want to see the damned language already!

 

i also dont deal with smoke and mirrors as well as i do with actual language.  but the actual language isnt even there. for example, according to the article, the section that would seem to deal with the treatment of of the senior pref is blank and pending further discussion.  this basically means to me that the bill is nowhere yet.

 

why it would be that the junior preferred are resuscitated and the common trashed, of which treasury owns 80%, still escapes me. i get that in order to promote competition you have to declaw FnF, but why throw away >$100B in taxpayer value to promote competition when you dont even know if the competition will emerge or promote housing finance as well as it is now with an effective duopoly that can be monitored with utility regulation?

 

fwiw I like the common value here.  the best deal is where everyone's a winner, and right now the common value of FNMA is sub $3bn - not a lot of juice to squeeze here.

[Guest cherzeca]

also this:  "Chris Gamaitoni and Isaac Boltansky, analysts for Compass Point Research & Trading, said they continue to believe that “persistent policy and political headwinds” put the odds of the current Congress passing legislation at about 10 percent."

 

how likely is it that mnuchin is in full bipartisan/work with congress mode only until such time as it either comes up with nothing, or what it comes up with doesnt satisfy his two first principles of housing finance reform? 

 

as an aside, if FnF are to transfer operational assets to new entities (leaving mortgage assets and liabilities with the receivership), what is the sales price for those assets? you think congress is even thinking of this?  how likely is it that sufficient capital can be raised by completely new entities? you think congress is even thinking of this? 

 

lots of hair on this mongrel, methinks

 

 

[Guest cherzeca]

@investorG

 

if compass is right (big if) that there is a 10% chance of any bill, whether or not this bill with a section entitled pending further discussion, passing this year, then fnma is overly-discounted. 

[investorG]

@investorG

 

if compass is right (big if) that there is a 10% chance of any bill, whether or not this bill with a section entitled pending further discussion, passing this year, then fnma is overly-discounted.

 

the banks likely believe 2018 is their best chance to pass something friendly to them. 

 

they need the small banks (who own preferred) on board, as well as the lawsuits (preferred) gone.

 

so they craft a bill in the senate (which leaks through their media guy) that pays them off while creating what appears to be a messy end game for America.

 

mnuchin may be on board, but he may have different priorities than ramming through this bill as described so far.  we just don't know.

 

I believe common is good value. and pref also, especially the cheaper ones.