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

[allnatural]

@cherzeca, thank you for all your insight.

 

I just finished the APA section (count 1) that ruled in plaintiffs favor. My quick take is that its a very powerful and poetically written ruling by Willet (not surprising considering his dissent). As I understand, the majority ultimately agreed that the NWS violated HERA and no different set of facts can change that, based off this quote, "Transferring substantially all capital to Treasury, without limitation, exceeds FHFA's power to put the GSEs in a "sound an solvent condition," "carry on their business," and "preserve and conserve their assets and property." We ground this holding in statutory interpretation, not business judgment."

 

The majority does go on to say there are factual discrepancies between the parties so its up to the lower circuit to decide if they want to get the facts straight for the record or just rule a summary judgement (presumably against the government), "the district court may decide if the fact issues require trial or if summary judgement should be granted." But the point the majority makes very clear to me is no set of facts can justify the NWS, and that you need not look further than the statue to determine this. Very positive on that point that should be driven home to all observers IMO.

 

So it appears this remand for potential fact checks is more procedural than anything, and ultimately the district court should fall in line with the Majority judges ruling that facts aren't necessarily relevant to the analysis of whether the NWS violated HERA and can just issue a summary judgment. Either way you slice it, the government is in a loss/loss scenario on this APA opinion, and plaintiffs surviving the motion to dismiss is a nightmare scenario for them. I wonder if the judges held off on summary judgment here in order to give the government an opportunity to save face and settle this ahead of time (after all Trump did nominate many of these judges). Regardless, shareholders now have a substantial amount of leverage at the negotiating table as that pending decision is now a ticking time bomb for the government. Curious what you think of my view @cherzeca. Thanks.

 

Great day for all shareholders. Congrats to everyone.

 

“We are delighted that the court has made clear that the net worth sweep will not be allowed to stand,” the shareholders’ lawyer, David Thompson, said of Friday’s ruling.

 

[Guest cherzeca]

cherzeca, last ones please (i think):?

 

what's the next step if no settlement - back to circuit court or govt appeal en banc to supreme court? 

 

if it goes back to circuit court, does it matter adversely to us that the judge is Clinton democrat?

 

thank you

 

both parties will seek writ of certiorari from SCOTUS.  Ps lost relief on const claim 7-9 so it will want to have SCOTUS hear this, and fhfa will want to have SCOTUS hear both claims.  I expect

SCOTUS to grant cert on both claims.  if it does, then the 5th C decision is held in abeyance pending SCOTUS determination.  if SCOTUS doesn't grant cert, then it is unclear whether fhfa director is removable only for cause (circuit split), and the DCt holds a trial on Ps alleged facts on the APA claim

 

ok, thanks.  not good.  waiting til may/june for a sc ruling puts too many eggs in 1 basket too late in the presidential term.

 

think about it. if SCOTUS denies cert on APA claim, Ps are ready for trial.  all their prep has been done and submitted in other cases.  Ps would ask for expedited trial.

[Guest cherzeca]

@cherzeca, thank you for all your insight.

 

I just finished the APA section (count 1) that ruled in plaintiffs favor. My quick take is that its a very powerful and poetically written ruling by Willet (not surprising considering his dissent). As I understand, the majority ultimately agreed that the NWS violated HERA and no different set of facts can change that, based off this quote, "Transferring substantially all capital to Treasury, without limitation, exceeds FHFA's power to put the GSEs in a "sound an solvent condition," "carry on their business," and "preserve and conserve their assets and property." We ground this holding in statutory interpretation, not business judgment."

 

The majority does go on to say there are factual discrepancies between the parties so its up to the lower circuit to decide if they want to get the facts straight for the record or just rule a summary judgement (presumably against the government), "the district court may decide if the fact issues require trial or if summary judgement should be granted." But the point the majority makes very clear to me is no set of facts can justify the NWS, and that you need not look further than the statue to determine this. Very positive on that point that should be driven home to all observers IMO.

 

So it appears this remand for potential fact checks is more procedural than anything, and ultimately the district court should fall in line with the Majority judges ruling that facts aren't necessarily relevant to the analysis of whether the NWS violated HERA and can just issue a summary judgment. Either way you slice it, the government is in a loss/loss scenario on this APA opinion, and plaintiffs surviving the motion to dismiss is a nightmare scenario for them. I wonder if the judges held off on summary judgment here in order to give the government an opportunity to save face and settle this ahead of time (after all Trump did nominate many of these judges). Regardless, shareholders now have a substantial amount of leverage at the negotiating table as that pending decision is now a ticking time bomb for the government. Curious what you think of my view @cherzeca. Thanks.

 

Great day for all shareholders. Congrats to everyone.

 

“We are delighted that the court has made clear that the net worth sweep will not be allowed to stand,” the shareholders’ lawyer, David Thompson, said of Friday’s ruling.

 

great question, that I have been thinking about as well.  if the holding is based on statutory interpretation and not business judgment then how can fhfa win, what facts could it present to win?...why didn't en banc give summary judgment?

 

as you intimate there is not a lot that fhfa can do to escape summary judgment at the DCt or a verdict after a very quick trial. 

 

but remember that both parties will seek cert from SCOTUS, so even if en banc granted summary judgment this holding would be suspended pending SCOTUS consideration.

[orthopa]

I'm still reading it, some 120 pages, but by i) 9-7 majority, 5thC en banc reversed the dismissal of the APA claim and remanded to DCt (meaning the Ps can go to trial to prove that the conservator did not have authority to adopt NWS), and ii) by a separate 9-7 majority ruled that the single fhfa director removable for cause only provision was unconstitutional but that Ps are entitled only to prospective relief (so NWS not invalid as a matter of constitutional law).

 

both parties will likely appeal.

 

Christian, thank you for your input. Do you think this leads to a settlement?

 

it certainly affects the fhfa/treasury negotiation.  if you guys read the opinion, which I encourage, check out the text to footnotes 178-180

 

So they cite Calabria himself huh? Interesting.

[hardincap]

man i would pay real good $ to see the look on the faces of parrott, stevens, et al as they read this opinion damning the nws...

[Guest cherzeca]

man i would pay real good $ to see the look on the faces of parrott, stevens, et al as they read this opinion damning the nws...

 

especially Parrott whose emails figured prominently in Judge Willett's analysis

[hardincap]

yup. that was delicious to read

[allnatural]

I just finished the dissenting opinion on APA claim and feel a lot more comfortable about our odds in SCOTUS if this gets there. The dissent was extremely lazy (only 5 pages, mostly saying they agree with the sister circuits) and unpersuasive as it didn't address any of the majority's carefully thought out points as to why the NWS violates HERA. If SCOTUS judges had to choose between these two opinions written today, shareholders should do fine.

[hardincap]

The head of fhfa agrees nws is illegal. This is not going to scotus. It will be settled. Mnuchin and Calabria got the political cover they needed

[Guest cherzeca]

The head of fhfa agrees nws is illegal. This is not going to scotus. It will be settled. Mnuchin and Calabria got the political cover they needed

 

it will be interesting to see how this decision is referred to by calabria and mnuchin, as well as the senators, at SBC....assuming they dont just ignore it at the SBC

[hardincap]

Yes, Tuesday can’t come soon enough. I’m guessing they skirt the topic though and keep it focused on the contents of the report. But little doubt in my mind Mnuchin and Calabria let out a sigh of relief today, as their jobs got significantly easier

[james22]

Funny, still no news coverage.

[hardincap]

the two most important players here are head of fhfa and head of treasury

 

the former strongly condemned the nws in writing, and the latter has spoken derisively of the conservatorship in general and has seen a close friend (lampert) and a business partner (paulson) get screwed by it.

 

these guys are the least likely pair to continue the fight over nws in court

[DRValue]

This decision may make an appearance at the hearing on Tuesday. I'd expect treasury and fhfa to lean heavily on it when they get the inevitable accusations of shareholder windfalls and crony capitalism.

 

The timing of the release of the decision irks me a bit. They waited to see what treasury said in the plan to decide what to release (based on cherzeca's analysis,  which I agree with). Isn't justice blind?

[DRValue]

No tweets re en banc from gasbag... I wonder what side of the fence he's on?

[Luke 532]

The head of fhfa agrees nws is illegal. This is not going to scotus. It will be settled. Mnuchin and Calabria got the political cover they needed

 

+1

[TwoCitiesCapital]

Doesn't this do A LOT more for the commons than the preferred at this point?

 

The preferred are good for par - we know that now that the NWS will be stopped. But if the NWS was illegal and a settlement would return some of those proceeds back, that means less dilution to the common as those billions come back as capital.

[Gregmal]

Doesn't this do A LOT more for the commons than the preferred at this point?

 

The preferred are good for par - we know that now that the NWS will be stopped. But if the NWS was illegal and a settlement would return some of those proceeds back, that means less dilution to the common as those billions come back as capital.

 

Probably yes. However arent there quite a few scenarios where the preffereds are worth way more? Off the top of my head some of these things have like 8% yields at par, no? So in a scenario where the capital structure is not completely rearranged, or the dividends get turned back on, or paid in arrears, in even preferred get converted to common, there would be scenarios where FMV is significantly in excess of par, or so I would think.

[Midas79]

Doesn't this do A LOT more for the commons than the preferred at this point?

 

The preferred are good for par - we know that now that the NWS will be stopped. But if the NWS was illegal and a settlement would return some of those proceeds back, that means less dilution to the common as those billions come back as capital.

 

I know it's just going to sound like I'm talking my book here, but I am of the opposite opinion. The biggest uncertainty behind the prefs gaining value is whether or not the NWS will end and how quickly. The timeline for that seems to have been accelerated by yesterday's opinion.

 

The commons, on the other hand, have a lot of uncertainty as to how much they will be diluted as part of the recap and release process. The opinion does nothing to alleviate this. In fact, I would go so far as to say that the remand, as opposed to an outright reversal with remedy, is bad for them because it allows Treasury to monetize the seniors, most likely by converting them to commons as they did with AIG.

[DRValue]

Doesn't this do A LOT more for the commons than the preferred at this point?

 

The preferred are good for par - we know that now that the NWS will be stopped. But if the NWS was illegal and a settlement would return some of those proceeds back, that means less dilution to the common as those billions come back as capital.

 

I know it's just going to sound like I'm talking my book here, but I am of the opposite opinion. The biggest uncertainty behind the prefs gaining value is whether or not the NWS will end and how quickly. The timeline for that seems to have been accelerated by yesterday's opinion.

 

The commons, on the other hand, have a lot of uncertainty as to how much they will be diluted as part of the recap and release process. The opinion does nothing to alleviate this. In fact, I would go so far as to say that the remand, as opposed to an outright reversal with remedy, is bad for them because it allows Treasury to monetize the seniors, most likely by converting them to commons as they did with AIG.

 

I don't think they can convert seniors to common without refunding the cash paid by GSEs because if they don't that would mean the govt gets paid twice. Lawsuits mean seniors are paid down. It should be better than that for plaintiffs as dividends shouldn't be allowed but I don't think that'll happen.

[Guest cherzeca]

thread: 

[Ahab]

Any guesses for what the stock does on Monday?  8)

[Luke 532]

Any guesses for what the stock does on Monday?  8)

 

I'm more interested what the stock does two weeks from now.  I bet we get either NWS ended/modified or a settlement by then.

[Luke 532]

“No one knows except it will be a minimum of $17-$18 based on Moelis, but not on Monday”

 

Any guesses for what the stock does on Monday?  8)

 

Emily, for the love of everything good and holy, would you please reference your quotes?  Thanks in advance.

[muscleman]

Any guesses for what the stock does on Monday?  8)

 

I'm more interested what the stock does two weeks from now.  I bet we get either NWS ended/modified or a settlement by then.

 

 

Likely a gap up and then up 30%.

This is the short coming of my current approach. When shocking news comes to the market, it disrupts any TA. I am fully aware of this short coming and accept it. I’ve also seen countless times when it goes the other direction like the Perry ruling.