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

[Guest cherzeca]

Does this case strengthen Plaintiff’s court cases? Especially Sweeney’s?

 

https://ecf.rid.uscourts.gov/cgi-bin/show_public_doc?2017cv0005-39

 

Does this also not strengthen the separation of powers case against FHFA? It  implies that he has been doing whatever he wants without regards for legality as we know NWS is not legal and he is not conserving either.

 

“But since Watt doesn’t have a supervisor, he said no one could take action against him.”

 

https://www.bloomberg.com/news/articles/2018-09-14/fannie-regulator-mel-watt-refused-to-aid-sexual-harassment-probe

 

This is too much happening in plain sight. May be nothing matters at this point.

 

 

But since Watt doesn’t have a supervisor, he said no one could take action against him.

There you go. Someone bring some kryptonite!

 

https://www.bloomberg.com/amp/news/articles/2018-09-14/fannie-regulator-mel-watt-refused-to-aid-sexual-harassment-probe?__twitter_impression=true

 

case is clearly good for fairholme in front of Sweeney.

But then, wouldn't it impact Perry the opposite way (breach of contract among private actors)?

 

no, breach claim still survives but the takings claim can be added.  not mutually exclusive

[rros]

Does this case strengthen Plaintiff’s court cases? Especially Sweeney’s?

 

https://ecf.rid.uscourts.gov/cgi-bin/show_public_doc?2017cv0005-39

 

Does this also not strengthen the separation of powers case against FHFA? It  implies that he has been doing whatever he wants without regards for legality as we know NWS is not legal and he is not conserving either.

 

“But since Watt doesn’t have a supervisor, he said no one could take action against him.”

 

https://www.bloomberg.com/news/articles/2018-09-14/fannie-regulator-mel-watt-refused-to-aid-sexual-harassment-probe

 

This is too much happening in plain sight. May be nothing matters at this point.

 

 

But since Watt doesn’t have a supervisor, he said no one could take action against him.

There you go. Someone bring some kryptonite!

 

https://www.bloomberg.com/amp/news/articles/2018-09-14/fannie-regulator-mel-watt-refused-to-aid-sexual-harassment-probe?__twitter_impression=true

 

case is clearly good for fairholme in front of Sweeney.

But then, wouldn't it impact Perry the opposite way (breach of contract among private actors)?

 

no, breach claim still survives but the takings claim can be added.  not mutually exclusive

Thanks.

[Wiggins]

Brian Brooks leaves Fannie...

http://fortune.com/2018/09/19/coinbase-brian-brooks/

 

with all due respect to both Brian Brooks (who probably is an excellent lawyer) and Coinbase, if FNMA is to raise many tens of billions of dollars to recapitalize, there needs to be a black belt Ceo in place with material expertise in real estate and capital raising.  The compensation caps would need to be adjusted by congress, which is another reason why mnuchin and phillips are likely trying for the legislative route in 1h19 before any comprehensive administrative action.  Looking at it from Trump's angle, I think it's best for him if it goes legislatively and the warrants pay for the wall and/or infrastructure.

 

In the mean time, if our leaders want to do the right thing, please replace the sweep with a commitment fee over the holidays!!

We were not blindsided and I doubt the payment cap was an issue here. Most likely, Mnuchin -and the Treasury Dpt. in general- see Coinbase as a backdoor entrance into the cryptocurrency world and want to have the inside scoop through a long time trusted advisor. It makes sense for exchanges to hire these government linked counselors. But when it comes to Coinbase, it is not a coincidence that the chosen name has been a close associate to Mnuchin.

 

Now, Treasury can have a bird's-eye view at the underworld and their venues of operation. Nothing like bitcoin or monero to laundry money or finance rouge industries, including terrorism. Besides this, this move gives absolute credibility to cryptocurrencies and the implied message is they are here to stay. Invest!

 

 

The big money to be made in cryptocurrencies are the fees. And Coinbase is the most established. Have you seen their fees and volume? Brooks is going from a low 6-figure salary to a 7-figure salary in his equity stake alone, and Coinbase gets Treasury legitimacy. This is in the no-brainer pile. Brooks will be using some of this cash to invest in Fannie and Freddie. The only question is will it be preferred or common shares?

I started this thread to minimize pollution here. If you can post the link with the hiring agreement over there I will appreciate it.

 

Sorry you thought my comment was pollution. You opined in several comments over the reason that Brooks would go to Coinbase. And I was just trying to be helpful in answering that. I don't think it's controversial to say the compensation of Chief Legal Officer of a growth company with more than a billion in revenue and 500 employees would be quite high.

I think it unlikely that Mnuchin has much to do with it, and I think it's unlikely that this bodes poorly for the Fannie and Freddie situation. Coinbase is the best exchange there is, and this would seem a spectacular opportunity for Brooks. Again, the fees are where the money is and Coinbase gets the lion's share and is poised to continue that into the future.

 

In a sense Fannie and Freddie strike a nice contrast to Coinbase. Fannie and Freddie are anything but new, and probably wouldn't be the most exciting place for a talent such as Brooks to work. Also, they almost certainly will have a strong regulator going forward that will keep compensation in check, unlike Coinbase.

[rros]

Brian Brooks leaves Fannie...

http://fortune.com/2018/09/19/coinbase-brian-brooks/

 

with all due respect to both Brian Brooks (who probably is an excellent lawyer) and Coinbase, if FNMA is to raise many tens of billions of dollars to recapitalize, there needs to be a black belt Ceo in place with material expertise in real estate and capital raising.  The compensation caps would need to be adjusted by congress, which is another reason why mnuchin and phillips are likely trying for the legislative route in 1h19 before any comprehensive administrative action.  Looking at it from Trump's angle, I think it's best for him if it goes legislatively and the warrants pay for the wall and/or infrastructure.

 

In the mean time, if our leaders want to do the right thing, please replace the sweep with a commitment fee over the holidays!!

We were not blindsided and I doubt the payment cap was an issue here. Most likely, Mnuchin -and the Treasury Dpt. in general- see Coinbase as a backdoor entrance into the cryptocurrency world and want to have the inside scoop through a long time trusted advisor. It makes sense for exchanges to hire these government linked counselors. But when it comes to Coinbase, it is not a coincidence that the chosen name has been a close associate to Mnuchin.

 

Now, Treasury can have a bird's-eye view at the underworld and their venues of operation. Nothing like bitcoin or monero to laundry money or finance rouge industries, including terrorism. Besides this, this move gives absolute credibility to cryptocurrencies and the implied message is they are here to stay. Invest!

 

 

The big money to be made in cryptocurrencies are the fees. And Coinbase is the most established. Have you seen their fees and volume? Brooks is going from a low 6-figure salary to a 7-figure salary in his equity stake alone, and Coinbase gets Treasury legitimacy. This is in the no-brainer pile. Brooks will be using some of this cash to invest in Fannie and Freddie. The only question is will it be preferred or common shares?

I started this thread to minimize pollution here. If you can post the link with the hiring agreement over there I will appreciate it.

 

Sorry you thought my comment was pollution. You opined in several comments over the reason that Brooks would go to Coinbase. And I was just trying to be helpful in answering that. I don't think it's controversial to say the compensation of Chief Legal Officer of a growth company with more than a billion in revenue and 500 employees would be quite high.

I think it unlikely that Mnuchin has much to do with it, and I think it's unlikely that this bodes poorly for the Fannie and Freddie situation. Coinbase is the best exchange there is, and this would seem a spectacular opportunity for Brooks. Again, the fees are where the money is and Coinbase gets the lion's share and is poised to continue that into the future.

 

In a sense Fannie and Freddie strike a nice contrast to Coinbase. Fannie and Freddie are anything but new, and probably wouldn't be the most exciting place for a talent such as Brooks to work. Also, they almost certainly will have a strong regulator going forward that will keep compensation in check, unlike Coinbase.

I am sorry the pollution remark got misunderstood. I thought this would be an interesting topic on its own and I was inviting you to expand on it. In a way, it was more of a compliment than a critic. I did write a lengthier answer originally only to realize I was deviating from the topic here. That's when I created the specific thread. So perhaps, that remark was directed towards me.

 

But you already expressed your view. That Brooks probably saw this simply as an opportunity for advancement and there is nothing else to read.

[Wiggins]

Thanks.

[Luke 532]

Hank Paulson today with Maria B.: http://video.foxbusiness.com/v/5840335027001/?#sp=show-clips

[Midas79]

Hank Paulson today with Maria B.: http://video.foxbusiness.com/v/5840335027001/?#sp=show-clips

 

Thanks for posting this.

 

Shocking to hear the word nationalization said so many times. Too bad Maria didn't ask Hank why they allowed shares to continue trading.

 

Hank says that FnF were a "flawed business model", and then seconds later says that they "work so well". Which is it? If the latter is true then why not allow the companies to recap and then release them? Couldn't FHFA act in such a way to make the reforms it has enacted as conservator permanent? Like no lobbying, minimal retained portfolio, even caps on returns to prevent shareholder value maximization being the primary focus of the companies.

[rros]

a) They keep moving the goal post.

 

or

 

b) The weakness of capitalism gets exposed for all to see when the king of private markets and free enterprise is overcome by the sheer power rendered by a nationalization. Just like democratic Trump is overcome by the apparent unlimited and omnipresent power of dictators.

 

Autocratic regimes and the use of nationalization as a tool for dominance is so irresistible that even the staunchest supporters of capitalism fall for both.

[Luke 532]

Treasury Sec. Mnuchin says infrastructure & housing will be big priorities in 2019: "The president very much wants to do infrastructure. That will be a priority next year. I'm very much focused on housing reform...that is gong to need to be done on a bipartisan basis."

 

Mnuchin went on to stress he wants to get the GSEs (aka Fannie and Freddie) out of government control.

[Midas79]

Treasury Sec. Mnuchin says infrastructure & housing will be big priorities in 2019: "The president very much wants to do infrastructure. That will be a priority next year. I'm very much focused on housing reform...that is gong to need to be done on a bipartisan basis."

 

Mnuchin went on to stress he wants to get the GSEs (aka Fannie and Freddie) out of government control.

 

The bipartisan part isn't good. Once Trump gets his own FHFA director in place, any administrative reform would only be by one party, no?

 

Funny that Mnuchin saying that he wants the companies out of government control caused share prices to skyrocket on 11/30/16 but hardly causes a blip today. Is just over 2 years too short a time to actually accomplish this goal? As in actually have the companies released (and presumably recapped) before Trump's term ends.

[Luke 532]

Can somebody confirm this? I'm on the road and not listening to hearing. Thanks.

 

Senior Management of the GSE's lobbying to RECAP & RELEASE- per hearing

[rros]

Can somebody confirm this? I'm on the road and not listening to hearing. Thanks.

 

Senior Management of the GSE's lobbying to RECAP & RELEASE- per hearing

Maybe that came up when Ed Royce said he will offer a bill to impede lobbying activities by FF during c-ship, r-ship and will include a way to tract any lobbying post c-ship/r-ship.

[Midas79]

Can somebody confirm this? I'm on the road and not listening to hearing. Thanks.

 

Senior Management of the GSE's lobbying to RECAP & RELEASE- per hearing

 

(Edit: Royce, not Hensarling) said this in his anti-FnF tirade at the end of Wertheimer's portion of the hearing. He talked for several minutes about FnF's past evils and not allowing them out of conservatorship in their prior form. I don't remember him saying "senior management of the GSEs" specifically, but he did mention that there are ongoing lobbying efforts to recap and release the companies, presumably by the companies themselves. If I remember right, Wertheimer then said that the companies are not allowed to lobby at this time.

[Luke 532]

Treasury Sec. Mnuchin says infrastructure & housing will be big priorities in 2019: "The president very much wants to do infrastructure. That will be a priority next year. I'm very much focused on housing reform...that is gong to need to be done on a bipartisan basis."

 

It is interesting that Mnuchin mentions infrastructure and housing reform in the same breath.  If only there were some way to find $100B or so to fund infrastructure initiatives through housing reform...

[Luke 532]

From Peter A. Chapman...

 

Judge Lamberth released a memorandum opinion this afternoon dismissing shareholders' claims for:

    -- breach of contract;

    -- breach of fiduciary duty;

    -- violation of Delaware and Virginia law;

 

and ruling that shareholders' claims for:

    -- breach of the implied covenant of good faith and fair dealing

 

survive and will go to trial.

 

A copy of the decision is attached to this e-mail message. 

13-mc-01288-0084.pdf

[allnatural]

"it does not follow that the Plaintiffs could reasonably expect that the GSEs themselves - through the FHFA - would give away all of the Plaintiff's residual rights to dividends and liquidation surplus in exchange for no investment and no meaningful consideration at a time when the GSEs were highly profitable."

 

8)

 

[DocSnowball]

From Peter A. Chapman...

 

Judge Lamberth released a memorandum opinion this afternoon dismissing shareholders' claims for:

    -- breach of contract;

    -- breach of fiduciary duty;

    -- violation of Delaware and Virginia law;

 

and ruling that shareholders' claims for:

    -- breach of the implied covenant of good faith and fair dealing

 

survive and will go to trial.

 

A copy of the decision is attached to this e-mail message.

 

Interesting read ... would be grateful for the legal insights on this. There are comments on timing - the Judge writes that shareholder rights are being duly transferred when they are sold further; also "reasonable expectations" are set at the origin of the contract and then "reset" when there is a change in the law or amendment of the contract. As I understand, he writes that the last line in the sand would be HERA where reasonable expectations were reset, and then the Third Amendment breached the covenant of good faith and fair dealing of these expectations.

 

As a layperson who read the prospectus and James Lockhardt's statement about conservatorship on the FHFA webpage prior to purchasing, I can relate to the breach of implied covenant of good faith and fair dealing. The judge seems to be saying that breach of fiduciary duty is preempted by HERA which the Court cannot change, but the shareholders had no reasonable idea that FHFA would enter into this Third Amendment with Treasury. The wrinkle seems to be that this is proceeding to hearings rather than any true action - qualifying more as "activity" rather than "progress"? 

 

Also what stops the Judge from finally ruling that only those who purchased prior to the Third Amendment have reasonable expectations, and those who purchased after the Third Amendment cannot say they had any reasonable expectations even though the rights of the prior shareholders transferred to them?

[SnarkyPuppy]

Also what stops the Judge from finally ruling that only those who purchased prior to the Third Amendment have reasonable expectations, and those who purchased after the Third Amendment cannot say they had any reasonable expectations even though the rights of the prior shareholders transferred to them?

 

I've brought this up multiple times and am always immediately dismissed.  Not a lawyer - but its one of the few things that keeps this from being a ridiculous sized position for me. 

[undervalued]

https://finance.yahoo.com/news/fannie-freddie-investors-maintain-hope-210628444.html

[Luke 532]

Landon Parsons of Moelis & Co.

Taking the First Steps to GSE Reform

September 27, 2018

https://morningconsult.com/opinions/taking-the-first-steps-to-gse-reform/

[Wiggins]

Also what stops the Judge from finally ruling that only those who purchased prior to the Third Amendment have reasonable expectations, and those who purchased after the Third Amendment cannot say they had any reasonable expectations even though the rights of the prior shareholders transferred to them?

 

I've brought this up multiple times and am always immediately dismissed.  Not a lawyer - but its one of the few things that keeps this from being a ridiculous sized position for me.

 

You shouldn't be dismissed.

 

I'm not a lawyer but I read Lamberth's ruling today very carefully and here is my take on what he said in his opinion: the contractual obligations, rights, and expectations of the securities do change as new laws, corporate actions, and regulations (such as HERA) are passed, BUT, when you buy a security you obtain all the rights from the previous owner. So the securities change over time, but they all change together and associated claims stand or fall together. To me, this allays your fear pretty clearly. Also, one of the plaintiffs' attorneys (can't remember I think Hamish Hume) asked, if contract rights or claims are lost when the security is sold to a new investor, then where do those rights go? Do they just vanish? I think in light of all this there should be little worry of securities being segregated into different classes based on when they were bought or sold. I don't think anyone in corporate America wants this precedent. But Lamberth's opinion is the most powerful statement so far.

 

My take on the Lamberth ruling is that it's pretty huge. Lamberth clearly demonstrates that he knows the "death spiral" story about the NWS told by the government is BS. Meanwhile he allows the surviving claim to be that of the "implied covenant of good faith and fair dealing" as pertains to the NWS. The implication seems to spell trouble for Treasury. Since Lamberth spelled out pretty clearly just how much more money Treasury has taken out than they put in (i.e. ~80 billion), then it seems reasonable that he could just order Treasury to pay the liquidation preference to junior preferreds, or alternatively, order the payment of 5 1/2 years of dividends on the junior preferreds.  Other thoughts on this last point?

[allnatural]

Wiggins you are spot on in your interpretation of Lamberths ruling. We wanted clarity on transfer of rights and he provided it black and white imo. Claims don't disappear into thin air but survive and travel to new owners.

 

Regarding what the monetary damages plaintiffs could be awarded... its anyones guess. Both parties will present what they believe is warranted and the courts will have to decide what's appropriate. Hopefully it doesnt get there and this ultimately prompts a recap release + settlement.

[rros]

Lamberth's reasoning re plaintiff's implied covenant claims is superb. Pretty much what we here understood all along. That the nws screwed us and came completely out of the left field.

 

Lacking a legal background I cannot assess the consequences of this ruling but, in general, it doesn't look like Lamberth is trying to separate classes into different categories. Instead, the "timing" discussion seems more like an exercise to determine the frame of reference against which the breach happened. In this regard, he set HERA and the designation of FHFA as conservator as the starting point for investors' expectations where it was understood: a) the companies were shareholder-owned and would remain in private hands, b) they would return to normal business operations at some point. Against this backdrop a breach occurred when -without any possible way to anticipate it- the 3rd amendment came to life. Setting this "time frame" (from HERA to the NWS) seems to be the court's practical way to analyze and establish where, when and if there was a breach.

 

Maybe too soon to determine but this seems like a good ruling for all our shares pre-news and post. And it cannot be underestimated this court just determined a) the GSEs were entering a period of sustained profitability at the time of the nws, b) the huge losses recorded swelled Treasury's draws unnecessarily and, c) the death-spiral argument was a complete scam. Not to mention, gems like "at the nascent of a sustained period of profitability, Plaintiff would have reasonably expected the GSEs to be moving out of conservatorship, not doubling down by executing the Net Worth Sweep".

 

Cheer up, everyone!

 

Edit: And shouldn't his demolition of the death-spiral scheme be supportive of Fairlhome's case in front of Sweeney?

[DRValue]

3/4 the way through the opinion.

 

I can't see how shareholders who bought their shares after the NWS don't have the contractual rights to any damages or relief granted by the court.

 

If I have bought someones shares after the NWS then the previous owner has surrendered their right to any claim and I own the contractual right to the claim. If I didn't buy the shares from someone and they gave me them free of charge, what have they given me? The contractual rights of the shares. If a company buys another company, they take on the contractual liabilities of the other company.

 

I've also looked in to bankruptcy claims courts proceedings and you can literally buy a claim from an claimant. You buy their rights. The question of timing doesn't matter.

 

I welcome any other opinion but I cant see any view to the contrary at the moment.

 

I'm not sure what we will be awarded, but I'm thinking only forgone dividends at the moment. And I only reach that conclusion as I have heard you cannot favour one shareholder alone in dividend payments. If you pay one, you pay all rate-ably. I can't see a liquidation preference payout, because ultimately these companies won't be liquidated.

 

Welcome any thoughts, ideally from the lawyers.

[DRValue]

3/4 the way through the opinion.

 

I can't see how shareholders who bought their shares after the NWS don't have the contractual rights to any damages or relief granted by the court.

 

If I have bought someones shares after the NWS then the previous owner has surrendered their right to any claim and I own the contractual right to the claim. If I didn't buy the shares from someone and they gave me them free of charge, what have they given me? The contractual rights of the shares. If a company buys another company, they take on the contractual liabilities of the other company.

 

I've also looked in to bankruptcy claims courts proceedings and you can literally buy a claim from an claimant. You buy their rights. The question of timing doesn't matter.

 

I welcome any other opinion but I cant see any view to the contrary at the moment.

 

I'm not sure what we will be awarded, but I'm thinking only forgone dividends at the moment. And I only reach that conclusion as I have heard you cannot favour one shareholder alone in dividend payments. If you pay one, you pay all rate-ably. I can't see a liquidation preference payout, because ultimately these companies won't be liquidated.

 

Welcome any thoughts, ideally from the lawyers.

 

Page 33 denies the rate ably claim...