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

[Guest cherzeca]

@MM

 

has material news come out?  is a two month delay in release of (what has been confirmed to be a finished) treasury plan material news?

 

 

[muscleman]

@MM

 

has material news come out?  is a two month delay in release of (what has been confirmed to be a finished) treasury plan material news?

 

To me, what makes me feel concerned is the tweet that the treasury plan has been in white house for weeks, where "weeks" probably means early June, and that's right around the time the stock peaked. That's the major bearish sign.

Regarding the "material news" yesterday, I don't have any ability to analyze the fundamentals better than most of you. I just saw lots of reference and comments yesterday, so I thought that implies material news.

 

[hardincap]

Yeah....... Sorry about that. At that time you said you didn't sell because the Bloomberg news was totally fake, so I got the impression that you would sell if some material news came out.

 

you continue to misrepresent; please stop. i never said bloomberg was "totally fake", i said it was nothing new. reread the memorandum, it basically says no r&r without reform.

 

your tea leaf readings are just that. it worked this time, congrats. i for one prefer to trade on facts and sound reasoning over speculations on whats behind maloni's statements (who, btw, i think is a wannabe and really just a nobody). the rational longs here (including me) have held since <15% par so i wouldn't gloat too much if i were you

[Midas79]

I was never pissed by rude comments from them because I know sooner or later Mr market will slap people who are arrogant and think they are smarter than everyone else in the world.

 

Who exactly is it that is "arrogant and thinks they are smarter than everyone else in the world?" If you're going to make statements like that, name names.

 

Also, Mr. Market slaps everyone down at some point regardless of personalities or intentions. All your post boils down to is pure schadenfruede, gloating over having made one good move. I really thought you were better than this.

[Guest cherzeca]

this is a strange administration.  it seems that mnuchin is at the center of everything, now the budget and debt ceiling negotiations, and so I guess the "finished" plan needs to sit while he moves from crisis to crisis (trade/sanctions/budget) and can focus on housing.  it does raise my concern that this administration can execute a recap; looking forward to the time investment bankers get a mandate and this process can move forward

[investorG]

@MM

 

has material news come out?  is a two month delay in release of (what has been confirmed to be a finished) treasury plan material news?

 

yes, material delay.  it's why the pref shares are down 20pct in a week.  the Bloomberg article on friday had some level of accuracy.  things can change as we've learned.  Calabria gave hope for the 1h2020 IPO with his earlier statements and now he has been neutered for some reason.  mnuchin can't or doesn't want to deliver.  who wants to buy shares in a company in 2020 that's going to remain in conservatorship for years -- only private equity or buffet perhaps and they would demand flesh.  I have no idea on Collins except there's a good chance it's a close call.  the Tsy plan and capital standards, if they are ever released, are not likely to be major positive catalysts on their own.  we were in an uptrend from 5 to 14 for seven months.  now we're just over 1 month into a downtrend and there's a decent chance it continues for some period.

[Fat Pitch]

More and more delays while central banks inject more and more liquidity in the global markets. The time value of money never stops. This investment has turned out to be extremely high on opportunity costs, but should eventually pay off... Lucky to get a IRR of 15% on this when factoring in the delays. What a shit show  :o

[DRValue]

I'm going to add more commons and prefs aren't I?

 

@MM what's the bottom target in the next 4 weeks?

[beaufort]

Re dividends getting paid out on jps while in conservatorship

 

I have long speculated privately that the conversion of jps to common is not settled. 

 

Has anyone read anything that makes paying the jps dividends inconsistent with Calabria's views?  If FHFA can declare dividends that permit it to pay out all of the companies' earnings to Treasury, FHFA can pay out a 10% of net income (2-2.5 B dividend) to jps holders while building capital over a period of years.  To be sure, it means a slower capital build.  But it does permit Fannie and Freddie to honour their contracts (Lamberth) and address expropriation (Sweeney). 

 

I thought the capital raise in one shot would not be as difficult as some have suggested, but I have no experience in such matters.  My impression (hope) was that given these two businesses are amongst the best I am aware of, at an appropriate price, and I assumed that the stock sale would be appropriately priced, there would be a buyer.  I may be wrong on that point and Don Layton's recent interview outlines the easy capital build.

 

Hume says not to prejudice some classes of shareholders over others.  As previously pointed out on this thread, If the dividends do not start getting paid out on jps, it is the the jps holders who will be most prejudiced moving forward.  The common gets to slow build and not get diluted.  Treasury has been paid back. 

 

Don Layton talked about how to easily build capital and the tougher road.  Obviously it's jps holders who want as quick a resolution as possible here. 

 

Paying dividends to jps holders takes care of a lot of problems. 

 

 

 

 

[Ahab]

Source please?

[Guest cherzeca]

Re dividends getting paid out on jps while in conservatorship

 

I have long speculated privately that the conversion of jps to common is not settled. 

 

Has anyone read anything that makes paying the jps dividends inconsistent with Calabria's views?  If FHFA can declare dividends that permit it to pay out all of the companies' earnings to Treasury, FHFA can pay out a 10% of net income (2-2.5 B dividend) to jps holders while building capital over a period of years.  To be sure, it means a slower capital build.  But it does permit Fannie and Freddie to honour their contracts (Lamberth) and address expropriation (Sweeney). 

 

I thought the capital raise in one shot would not be as difficult as some have suggested, but I have no experience in such matters.  My impression (hope) was that given these two businesses are amongst the best I am aware of, at an appropriate price, and I assumed that the stock sale would be appropriately priced, there would be a buyer.  I may be wrong on that point and Don Layton's recent interview outlines the easy capital build.

 

Hume says not to prejudice some classes of shareholders over others.  As previously pointed out on this thread, If the dividends do not start getting paid out on jps, it is the the jps holders who will be most prejudiced moving forward.  The common gets to slow build and not get diluted.  Treasury has been paid back. 

 

Don Layton talked about how to easily build capital and the tougher road.  Obviously it's jps holders who want as quick a resolution as possible here. 

 

Paying dividends to jps holders takes care of a lot of problems. 

 

 

 

my heuristic is that when you do a massive recap, you have two constituencies: existing investors and new investors.  to be brief, the better you treat existing investors in the recap, the worse the new investors will be on you with respect to pricing.  the worse the pricing is the harder to execute the recap.  paying out noncumulative divs on existing junior pref is imo being too good treatment in this push/pull recap game

[allnatural]

Has anyone read anything that makes paying the jps dividends inconsistent with Calabria's views? 

 

During his CNBC interview- he floated the idea of jr pfds getting converted or receiving PAR, didn't mention anything re: div's, but its possible.

[Guest cherzeca]

Has anyone read anything that makes paying the jps dividends inconsistent with Calabria's views? 

 

During his CNBC interview- he floated the idea of jr pfds getting converted or receiving PAR, didn't mention anything re: div's, but its possible.

 

or getting par value of common in connection with a conversion, which is what I thought he was referring to.  that interview gave me the impression that mnuchin and calabria have been discussing the matter...

[muscleman]

I'm going to add more commons and prefs aren't I?

 

@MM what's the bottom target in the next 4 weeks?

 

I don't see any sign of bottom yet. However I don't have much skills picking bottoms.

[muscleman]

I was never pissed by rude comments from them because I know sooner or later Mr market will slap people who are arrogant and think they are smarter than everyone else in the world.

 

Who exactly is it that is "arrogant and thinks they are smarter than everyone else in the world?" If you're going to make statements like that, name names.

 

Also, Mr. Market slaps everyone down at some point regardless of personalities or intentions. All your post boils down to is pure schadenfruede, gloating over having made one good move. I really thought you were better than this.

 

I don't have a good memory for names who taunted me. But I always remember people who helped me. Let me tell you who I respect the most in this thread. First is Chris. Second is Luke.  :)

 

[Guest cherzeca]

I was never pissed by rude comments from them because I know sooner or later Mr market will slap people who are arrogant and think they are smarter than everyone else in the world.

 

Who exactly is it that is "arrogant and thinks they are smarter than everyone else in the world?" If you're going to make statements like that, name names.

 

Also, Mr. Market slaps everyone down at some point regardless of personalities or intentions. All your post boils down to is pure schadenfruede, gloating over having made one good move. I really thought you were better than this.

 

I don't have a good memory for names who taunted me. But I always remember people who helped me. Let me tell you who I respect the most in this thread. First is Chris. Second is Luke.  :)

 

thanks MM! you can pick my bottom anytime

[beaufort]

Has anyone read anything that makes paying the jps dividends inconsistent with Calabria's views? 

 

During his CNBC interview- he floated the idea of jr pfds getting converted or receiving PAR, didn't mention anything re: div's, but its possible.

 

or getting par value of common in connection with a conversion, which is what I thought he was referring to.  that interview gave me the impression that mnuchin and calabria have been discussing the matter...

 

I'm going to stretch here:  Calabria may also have assumed par if the dividends are resumed.

 

@cherzeca I hear you re good treatment.  But I think Paulson/etc. signed up for good treatment as well.   

[Luke 532]

I don't have a good memory for names who taunted me. But I always remember people who helped me. Let me tell you who I respect the most in this thread. First is Chris. Second is Luke.  :)

 

Thanks, I appreciate that compliment!

[Guest cherzeca]

@beaufort

 

"@cherzeca I hear you re good treatment.  But I think Paulson/etc. signed up for good treatment as well."

 

right, let me revise, good treatment for existing shareholders that doesn't actually involve an outflow of precious money.  giving existing jps holders a nice conversion into common is a cheap-ish way of tipping your hat to existing holders

 

[beaufort]

@cherzeca

There is also an assumption many of us have made as well and explicit in your point:  there will be new shareholders (making a massive common stock buy in the form of the capital raise).

 

Let's assume the 150B combined capital that Calabria has been speculated to want.

 

At 20B net income, even after paying out jps dividends, retained earnings get the businesses recapped in 7sih years.  If a secondary offering happens after a slow build of capital of 4ish years and on Calabria's watch, great.  If not, Calabria doesn't push them out of conservatorship and the companies continue to slow build for another couple of years before getting pushed out. 

 

My base case is still that we have a massive capital raise in the next year or so and that the businesses are out of conservatorship before the next election. 

 

 

 

 

[Guest cherzeca]

@beaufort

 

I think the sensible plan is to engage in a 4 year plan where earnings are retained as much as possible (hence no jps divs), and market conditions dictate whether and when you do a re-IPO and follow on secondaries.  follow on secondaries will occur if the re-IPO is successful, and not if not.  but I dont see a re-IPO unless everyone has "jumped into the pool", meaning the sps has been wiped out and the jps has converted.  I also think (this may be my bias) that the market will force treasury to give up some of its warrants...or treasury will transfer some of its warrants as grease to big ticket common buyers.

 

there is a lot that can gum up the works, but I just dont see congress being a gummer in my mind's eye

[DRValue]

I'm going to add more commons and prefs aren't I?

 

@MM what's the bottom target in the next 4 weeks?

 

I don't see any sign of bottom yet. However I don't have much skills picking bottoms.

 

Looking at the chart since Jan 19, $2.50 looks like support to me. There aren't any catalysts until the plan late August unless something leaks, and the timeline has potentially been pushed out. Trading should probably follow the trend until more news. No idea where we end up if we breach $2.50.

I haven't the tools to see what a moving average would suggest. Any thoughts?

[Midas79]

Returning to Hamish Hume's warning about favoring the pref shareholders over the commons:

 

The Moelis plan provides a much higher return to the commons than the prefs. That means Hume could not have been talking about this. In that case, what was he talking about and why did he feel the need to write his letter when he did, or at all?

 

I think it must have been prompted by something he heard. Possibly a conversation between some plaintiffs and FHFA/Treasury about a settlement that would disproportionately favor the prefs? With Hume going public as a way to refuse to go along with it? I can only speculate, but the existence and timing of his letter makes me think that he either knows or fears something.

[Luke 532]

Possibly a conversation between some plaintiffs and FHFA/Treasury about a settlement that would disproportionately favor the prefs? With Hume going public as a way to refuse to go along with it? I can only speculate, but the existence and timing of his letter makes me think that he either knows or fears something.

 

I can't get his letter out of my head. I think you nailed the most likely reason he wrote it.  As a pref holder I'd obviously be happy if those settlement negotiations are taking place.

 

Lawyers...is it unusual for an attorney to write a public piece concerning a current case in which they are involved? I would imagine so.

[hardincap]

Occam razer suggests he was simply giving his clients a voice on workable terms and that his conversion comment was in response to calabrias CNBC interview. I wouldn’t read too much into it