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

[Midas79]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

[Luke 532]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

 

Agreed.  Was just throwing the article out there so we're aware of it, for what it's worth.

[Guest cherzeca]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

 

Agreed.  Was just throwing the article out there so we're aware of it, for what it's worth.

 

definitely a call to arms.  but does anyone still read Breitbart?

[Guest cherzeca]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

wow, what an unpleasant man.

 

the moelis plan is not likely imminent.  perhaps hopefully more like a backup plan if legislative fails.  the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. 

 

EDIT:  this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref.  60-80pct is a hopeful resolution to me.  there has to be some shared sacrifice optics even if many believe it's not fair.

 

I have been thinking abut the divergent price action of pref and common.  I am not sure there is anything resembling a tell here other than investors who want to get in also want to take the lesser risk proposition.  I don't think there is a plan/rumor out there that crams the common that anyone is trading on.  I wouldn't say moelis crams the common.  it just may be nothing more than ackman aversion.

 

EDIT:  I suppose if someone knew that administration was planning to use moelis blueprint but insists on using its ratchet at end of process, that might account for common depreciation, but that ratchet provision has always been in the warrant agreement.  so what's the new news? 

[TwoCitiesCapital]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

wow, what an unpleasant man.

 

the moelis plan is not likely imminent.  perhaps hopefully more like a backup plan if legislative fails.  the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. 

 

EDIT:  this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref.  60-80pct is a hopeful resolution to me.  there has to be some shared sacrifice optics even if many believe it's not fair.

 

The shared sacrifice would be ALLOWING conversion of the junior preferred into equity instead of demanding the cash principal in which we're legally entitled.

 

[Guest cherzeca]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

wow, what an unpleasant man.

 

the moelis plan is not likely imminent.  perhaps hopefully more like a backup plan if legislative fails.  the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. 

 

EDIT:  this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref.  60-80pct is a hopeful resolution to me.  there has to be some shared sacrifice optics even if many believe it's not fair.

 

The shared sacrifice would be ALLOWING conversion of the junior preferred into equity instead of demanding the cash principal in which we're legally entitled.

 

although the administration could always propose a deal which is conditioned on say 90% conversion of outstanding pref at some discount to par.  then we get to play the holdout game.

[rros]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

 

Agreed.  Was just throwing the article out there so we're aware of it, for what it's worth.

 

definitely a call to arms.  but does anyone still read Breitbart?

Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'.

[Guest cherzeca]

I did a back of envelope fnma valuation assuming full conversion of junior pref at par, and administration use of ratchet after such conversion, and after applying an 8X PE to E2018 net income, i came up with a valuation of $1.25 for fnma common.  this may be pref holders wishful thinking, but applying the ratchet after full conversion at par of prefs does have a very dilutive effect on common.

[rros]

I did a back of envelope fnma valuation assuming full conversion of junior pref at par, and administration use of ratchet after such conversion, and after applying an 8X PE to E2018 net income, i came up with a valuation of $1.25 for fnma common.  this may be pref holders wishful thinking, but applying the ratchet after full conversion at par of prefs does have a very dilutive effect on common.

This assumes a Treasury that is out to get the commons. That was Obama's. If current Treasury dpt. aligns with Moelis or similar while there will be dilution there won't be punishment, in my view.

[investorG]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

wow, what an unpleasant man.

 

the moelis plan is not likely imminent.  perhaps hopefully more like a backup plan if legislative fails.  the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. 

 

EDIT:  this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref.  60-80pct is a hopeful resolution to me.  there has to be some shared sacrifice optics even if many believe it's not fair.

 

The shared sacrifice would be ALLOWING conversion of the junior preferred into equity instead of demanding the cash principal in which we're legally entitled.

 

 

there are many judges out there who think differently about what's legally entitled.  rather than accept a reasonable compromise, do the plaintiffs really want to roll the dice that Sweeney / lamberth will right the wrong when so many others have failed?

[DocSnowball]

I did a back of envelope fnma valuation assuming full conversion of junior pref at par, and administration use of ratchet after such conversion, and after applying an 8X PE to E2018 net income, i came up with a valuation of $1.25 for fnma common.  this may be pref holders wishful thinking, but applying the ratchet after full conversion at par of prefs does have a very dilutive effect on common.

This assumes a Treasury that is out to get the commons. That was Obama's. If current Treasury dpt. aligns with Moelis or similar while there will be dilution there won't be punishment, in my view.

Careful though, unlike the preferreds, if receivership happens or status quo continues the commons can go close to zero in a matter of days.

[investorG]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

 

Agreed.  Was just throwing the article out there so we're aware of it, for what it's worth.

 

definitely a call to arms.  but does anyone still read Breitbart?

Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'.

 

regarding moelis, it's hard to raise many tens of billions of dollars from investors without having some sort of legislative stamp of approval.  what we need, imo, is a spark to get congress to compromise and get a deal done -- and that spark is the NWS stoppage next month.

 

[rros]

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted.

 

Agreed.  Was just throwing the article out there so we're aware of it, for what it's worth.

 

definitely a call to arms.  but does anyone still read Breitbart?

Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'.

 

regarding moelis, it's hard to raise many tens of billions of dollars from investors without having some sort of legislative stamp of approval.  what we need, imo, is a spark to get congress to compromise and get a deal done -- and that spark is the NWS stoppage next month.

This is also inline with the main idea behind my post. With Corker and Hernsanling out, expecting a wink from Congress is more realistic. I am not sure how much influence Robert Mercer can pull in Congress.

[Midas79]

I did a back of envelope fnma valuation assuming full conversion of junior pref at par, and administration use of ratchet after such conversion, and after applying an 8X PE to E2018 net income, i came up with a valuation of $1.25 for fnma common.  this may be pref holders wishful thinking, but applying the ratchet after full conversion at par of prefs does have a very dilutive effect on common.

 

Doesn't this just lead to the juniors getting 20% of par? Why would they agree to a conversion if the warrants have yet to be exercised?

[Guest cherzeca]

I did a back of envelope fnma valuation assuming full conversion of junior pref at par, and administration use of ratchet after such conversion, and after applying an 8X PE to E2018 net income, i came up with a valuation of $1.25 for fnma common.  this may be pref holders wishful thinking, but applying the ratchet after full conversion at par of prefs does have a very dilutive effect on common.

 

Doesn't this just lead to the juniors getting 20% of par? Why would they agree to a conversion if the warrants have yet to be exercised?

 

right.  if the warrant ratchet is applied after any junior pref conversion, then junior prefs sit in the same dilution boat as public common.  of course, junior prefs don't have to convert but if junior prefs don't convert, then there is no massive added dilution arising from the ratchet that crams the common price.

 

from which I infer that the relative outperformance of prefs to common is not a ratchet dilution story. 

 

another thought is that some are going long prefs and hedging by shorting common, thinking that they can close the short with common received in connection with a possible conversion of their prefs.

[Dazel]

 

 

I have not been following this closely...and I will make maybe ask a silly question...why would the government do anything with the jr prefs other than reinstate the dividends? These would be paid out of future profits from Fannie and Freddie and would not cost or dilute the treasury’s common stake on conversion?the market would reprice the jr prefs and their value would be determined by the market and not have to be paid out in $ from the pie. Clearly dividends should have been paid to the jr prefs long ago.

 

Unless they are going into receivership...then that’s a different story.

[Dazel]

 

While this would appear like a massive win to the jr prefs...in a fair conversion to common the jr prefs would make more money over the longer term...I don’t see how or why the treasury would take money out of its pocket to pay off the jr prefs....conversion or dividend reinstatement are non cash items and keep $ in the government coffers...has anyone seen the deficit lately?!

 

Assuming that either proposal is even remotely in the cards of course as Stolen $ from Fannie and Freddie have helped the deficit greatly since the great  NWS heist. Is that not greatest theft in history?

[allnatural]

I don't think this outcome is worst thing that can happen (admin can choose to do nothing with jr prefs and turn on dividend in 2-3 years from now once fully recapped) but admin would need jr pref shareholders on board. Remember that unless you settle with jr pref shareholders in litigation it will be difficult to raise new outside private capital with the prospect of a $100b+ ruling on the horizon. I think for this to work and with least headache possible admin must start with clean slate which involves resolving all litigation and removing current jr pref series. Either convert jr prefs to new common or new prefs while removing any legacy litigation risk.

[Guest cherzeca]

@dazel

 

as rates increase refinancing prefs will look less attractive.  but they may want to structure a transaction that is conditioned on prefs conversion into common and then use the ratchet in the warrants to dilute the outstanding public shares, before going to public to sell their common and raise a whole lot more.

 

frankly, if I were treasury, I would exchange 80% warrants for a slug of new senior pref (having eliminated the current senior pref) and blow it all out the door at once to the institutional market.  treasury would take a discount in outstanding value in exchange for ability to execute immediate resale.  selling 80% common position and raising new common (moelis) won't be that easy (even though it was done in AIG). selling new senior pref (say $50B) would be easier.  boom!  then outstanding juniors can convert into existing common or not.

[rros]

 

 

I have not been following this closely...and I will make maybe ask a silly question...why would the government do anything with the jr prefs other than reinstate the dividends? These would be paid out of future profits from Fannie and Freddie and would not cost or dilute the treasury’s common stake on conversion?the market would reprice the jr prefs and their value would be determined by the market and not have to be paid out in $ from the pie. Clearly dividends should have been paid to the jr prefs long ago.

 

Unless they are going into receivership...then that’s a different story.

Originally, Treasury added a moral note to the story. Obama's moral high ground by which shareholders don't deserve a penny out of any government rescue. Right before he was elected Obama publicly stated in an interview that speculators weren't going to benefit from the GSEs bailout. Some Senators jumped unto this bandwagon to perpetuate the narrative, notably Senators Corker and Warner. Then, this was compounded by court rulings. All together, with some media outlets, solidified this moral view over the years which resulted on a major impediment to progress. That, on top of the inherent complexities of it all. 

 

There is still some lingering effect from upholding Obama's universal principle of justice. Doing the common sense thing you suggest relies entirely on how much of this moral standard remains. Breitbart (Robert Mercer) is trying to fully revive it and this is why some members here -InvestorG for one-  believe a compromise not only is necessary but it will happen.

 

I don't.

[TwoCitiesCapital]

 

 

I have not been following this closely...and I will make maybe ask a silly question...why would the government do anything with the jr prefs other than reinstate the dividends? These would be paid out of future profits from Fannie and Freddie and would not cost or dilute the treasury’s common stake on conversion?the market would reprice the jr prefs and their value would be determined by the market and not have to be paid out in $ from the pie. Clearly dividends should have been paid to the jr prefs long ago.

 

Unless they are going into receivership...then that’s a different story.

 

To recap the company and get out from underneath legacy positions that were issued 15-20 years ago when rates were significantly higher.

 

I think, ideally, the companies would want to start off paying a 1-2% dividend on common to entice investors to participate in what is going to be a massive recapitalization with several tranches of govt warrant sales and/or follow on equity offerings.

 

They can't do that with preferred sitting in front of the common - some yielding 7-8%.

 

Converting the preferred into common starts the companies with a clean slate, reduces cash outflows to retain more earnings, and allows for attracting new equity investors to participate in follow-on offerings.

 

They can always re-issue new preferred equity at much more attractive rates if that's a desirable part if the capital structure.

 

[rros]

I understand that the recap, conversion all have to be done at the same time and not in steps as the language in 2008 agreements says that they own 79.9% of outstanding shares at any point of time i.e. if you do in steps, they will keep getting 79.9% of diluted outstanding shares at that time.

 

How does a company get recapitalized when you keep pulling out even more money from its books by issuing more shares for treasury to spend? Doesn’t company keep getting weaker than recapitalized?

Dilution does not make the companies weaker while recapitalization revives them. What the shares are and what the companies are, are two different things. I think at this point, where the housing market is beginning to falter, the argument that common sense must prevail (not kill the shares, not over-dilute, not continue hurting shareholders, etc.) is as powerful as the old Obama argument that 'not one penny of profits should go their way'.

[TwoCitiesCapital]

Is Corker feeding this to the reporter? Is it not illegal and would be considered insider trading if plan is leaked? Proof that officials have taken a favorable view? Which officials? Proof please. It is in a newspaper, need facts, otherwise fake news as far as I am concerned.

 

 

https://www.breitbart.com/economy/2018/11/21/carney-hedge-funds-are-manuevering-to-loot-fannie-and-freddie-from-the-u-s-taxpayer/amp/?__twitter_impression=true

"It has garnered support among some Treasury Department officials, including very high-ranking advisers to Treasury Secretary Steven Mnuchin. Most of the officials who have taken a favorable view of the Moelis plan have close ties to Wall Street firms themselves."

 

Govt officials can, and do, trade on information and it is not illegal - for whatever that is worth.

[investorG]

mnuchin on the hot seat, per the WSJ.  since he cant change the fed pick and the Chinese likely don't take him too seriously, hopefully he feels motivated to accomplish something significant, soon, and fair on housing.

[Luke 532]

mnuchin on the hot seat, per the WSJ.  since he cant change the fed pick and the Chinese likely don't take him too seriously, hopefully he feels motivated to accomplish something significant, soon, and fair on housing.

 

https://twitter.com/realDonaldTrump/status/1066116263649382400

@realDonaldTrump

I am extremely happy and proud of the job being done by @USTreasury Secretary @StevenMnuchin1. The FAKE NEWS likes to write stories to the contrary, quoting phony sources or jealous people, but they aren’t true. They never like to ask me for a quote b/c it would kill their story.