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

[Midas79]

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

 

This is going to sound strange, but I think it will be rather flat overall. The weekend is enough time to digest the fact that the en banc panel did not grant the plaintiffs the big awards some were expecting. It's the same as the Treasury plan, many who bought in hopes that Treasury would say something really shareholder-friendly were disappointed.

 

I can't put my finger on it, but for some reason I am underwhelmed by the opinion. I think it gives plaintiffs more settlement leverage but that's it. If the case ever gets to trial it means that the administration isn't nearly as committed as we thought to recap and release.

[rros]

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

 

This is going to sound strange, but I think it will be rather flat overall. The weekend is enough time to digest the fact that the en banc panel did not grant the plaintiffs the big awards some were expecting. It's the same as the Treasury plan, many who bought in hopes that Treasury would say something really shareholder-friendly were disappointed.

 

I can't put my finger on it, but for some reason I am underwhelmed by the opinion. I think it gives plaintiffs more settlement leverage but that's it. If the case ever gets to trial it means that the administration isn't nearly as committed as we thought to recap and release.

Midas, don't you think that the wording "prospective relief is the proper remedy" will provoke a buying stampede on Monday morning? Doesn't this mean that whoever held in the past and sold is out of luck but whoever buys on Monday and holds is in possession of the lucky ticket, whenever the rewards come? Sort of a sprint to get in through a really narrow door... buy first, ask questions later.

[no_free_lunch]

https://www.wsj.com/articles/investors-notch-victory-over-fannie-freddie-profits-11567879840

 

 

Funny, still no news coverage.

 

Yes, also an article in bloomberg.

 

Fannie Mae and Freddie Mac investors won a big victory in their long battle to reap benefits from their stakes in the mortgage giants with a court ruling letting them pursue claims that the U.S. sweep of the companies’ earnings is illegal.

..

“Congress created FHFA amid a dire financial calamity, but expedience does not license omnipotence,” a majority of judges on a 16-member panel said in Friday’s ruling.

 

The message is getting out there.

 

I think shares are up strong on Monday.  I have no idea where they end up but if they are flat or down I am buying more.

 

https://www.bloomberg.com/news/articles/2019-09-06/fannie-freddie-investors-get-key-win-in-bid-to-end-profit-sweep

[orthopa]

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

 

This is going to sound strange, but I think it will be rather flat overall. The weekend is enough time to digest the fact that the en banc panel did not grant the plaintiffs the big awards some were expecting. It's the same as the Treasury plan, many who bought in hopes that Treasury would say something really shareholder-friendly were disappointed.

 

I can't put my finger on it, but for some reason I am underwhelmed by the opinion. I think it gives plaintiffs more settlement leverage but that's it. If the case ever gets to trial it means that the administration isn't nearly as committed as we thought to recap and release.

Midas, don't you think that the wording "prospective relief is the proper remedy" will provoke a buying stampede on Monday morning? Doesn't this mean that whoever held in the past and sold is out of luck but whoever buys on Monday and holds is in possession of the lucky ticket, whenever the rewards come? Sort of a sprint to get in through a really narrow door... buy first, ask questions later.

 

My thinking is kind of along the same lines of Midas. Shit, I would love a huge up day monday but to me, it looks like the "prospective relief" was going to happen anyway. The Treasury plan said so didnt it? My read on the Treasury plan was the NWS modification or end was coming soon, next 3 months so maybe this does push things up but in the end even if the Q3 payment is swept its what a ~3B difference? Then again I saw the NWS stopping as a significant driver of a partial move to par so maybe the stock will pop.

 

I think the removal for cause ruling certainly could move things up or put a giddy up on things. If Calabria is at risk of being out by early 2021 all or a significant amount of the recap needs to be done.

 

I see many people beating their chests and ecstatic that its on paper that the NWS was illegal and that justice has finally been served by the courts but unless Calabria/Mnuchin act sooner then they were was it really?

[orthopa]

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.

 

Not being obtuse but isnt the "settlement" the NWS ending?  Does the recap timeline now with Calabria maybe out by early 2021 afford time for a cert to the SCOTUS and then a ruling by the district court? I guess my fear now is this hanging over and delaying any recap that could be put in motion unless any settlement was tax credits etc that could be instituted at any time.

[Ahab]

I think we gap up considerably this coming week. That being said, I agree that what happens in the comings months/year is of great importance to the success of reform efforts.

I perceive the En Banc decision to be providing the admin more political/legal cover to pursue the reform solution that they already wanted to enact. On Thursday, we heard the pushback from the usual suspects (I'm talking about you Bloomberg, you sorry excuse for a news organization) about "hedge-fund windfalls" and "reform taking years." I perceive this ruling to be accelerating the timeline and helping neutralize pushback.

[Luke 532]

Not being obtuse but isnt the "settlement" the NWS ending?

 

Yes, that or an agreement to be converted at par with an anti-dilution clause. It's possible plaintiffs ask for more than par given they have some leverage now.

[orthopa]

Not being obtuse but isnt the "settlement" the NWS ending?

 

Yes, that or an agreement to be converted at par with an anti-dilution clause. It's possible plaintiffs ask for more than par given they have some leverage now.

 

Ok so your impression is that the overpayment ~20B flows to the preferred in one of the above ways and not via the two methods of relief that were proposed by the plantiffs? I guess thinking this out this flows down the captial structure as a pay in kind dividend or non dilution clause benefit in an exchange? Can treasury effectively pay a dividend if the company wasnt in a "safe and sound" condition?

 

I guess just looking at this right now, NWS likely to end say in 3 weeks. Treasury and FHFA will likely be willing to get things moving with FHFA removal ruling but with relief prospective are they going to feel compelled to give up a lot? I just feel like its easy to jump to assuming there will be a settlement but are they in a position where they have to? I dont know.

[Guest cherzeca]

I imagine we get back over the week what we lost Friday. Should be more.

[Luke 532]

Thoughts?

 

https://www.valueplays.net/2019/05/31/subs-gse-investment-change/

Under Delaware law, (according to plaintiff atty David Thompson) if plaintiffs win, they are entitled to “pre-judgment” interest. It typically comes to, on the low end 6% annually (courts split on simple or compounded) from date of injury. This would be from Sept. 2012, the enactment of NWS. Total damages mean preferred final value ~150% of par. Rather than paying cash, this could be rolled into conversion.

 

Edit: this was posted with Todd's permission

[Guest cherzeca]

Thoughts?

 

https://www.valueplays.net/2019/05/31/subs-gse-investment-change/

Under Delaware law, (according to plaintiff atty David Thompson) if plaintiffs win, they are entitled to “pre-judgment” interest. It typically comes to, on the low end 6% annually (courts split on simple or compounded) from date of injury. This would be from Sept. 2012, the enactment of NWS. Total damages mean preferred final value ~150% of par. Rather than paying cash, this could be rolled into conversion.

 

Edit: this was posted with Todd's permission

 

I believe this relates to the Lamberth case (Delaware law) not the collins case (federal law).  collins might still have a federal interest accrual on payments in excess of the 10% moment.

[DRValue]

Chris, could treasury give preferred holders some warrants to make up any difference between par and the necessary relief?

[Luke 532]

Apparently Mnuchin will be interviewed by Maria Bartiromo Monday morning on Fox Business News.

[Wiggins]

I thank everyone again here for all the great comments and congratulate all the holders.

 

Just finished reading the excellent Willet-authored ruling. There seems to be some debate on COBF over relief and how it would affect commons. It seems to me "prospective" only deals with the constitutional claims, not at all the APA claims. The APA claim is remanded but the en banc majority lay it out pretty starkly.

It's inconceivable to me, given Willet's utter dismantling of the NWS action under the APA claim, that relief would not include unwinding the great monetary damage done by the NWS from the get-go (i.e. from the date it was enacted). I mean, it violated the duty to "preserve and conserve", so the thought that relief would not somehow restore the unlawfully confiscated property just doesn't gibe. (Hey, I stole all your sheep and that was found to be illegal, but the ruling is that I get to keep all your sheep as long as I don't do it any more...no). And the largest monetary confiscation was immediately after the NWS was enacted, 2013.

Thus, in some fashion, money is returned to the GSEs as Thompson discussed in front of the panel (Judges Stewart, Willet, Haynes...i.e., the Brinks truck conversation). This is likely accomplished as discussed by just voiding the SPS liquidation preference since it's considered paid down and then returns over-payment past the 10% moment, at least. The other alternative, return ALL funds paid over the 10% dividend and keep the SPS liquidation preference intact isn't likely logistically. But, either way, there is no conversion of SPS into commons causing dilution.

Given this reality, the commons just gained massive value, possibly low or even high multiples of tens.

So, I agree with the other previous comment to this effect.

have fun!

[Guest cherzeca]

@wiggins

 

relief for the APA claim would be as Ps requested, void the NWS, and the most practical method would be to apply the payments as they were made historically in accordance with the regimen of the prior 10% dividend senior preferred regime, so that you would reach the 10% moment, and then the senior pref would be deemed paid off, and then all dividends thereafter (presumably with interest) would have to be returned to the company.  these excess dividends could be "repaid" in other ways, such as a credit for future taxes.

 

@Luke. I will likely miss that interview, so if anyone can post a vid of it I would appreciate it.

[Guest cherzeca]

@DR

 

I suppose the excess dividends could also be repaid by treasury by cancelling warrants having that agreed value.

[Luke 532]

Thoughts?

 

https://www.valueplays.net/2019/05/31/subs-gse-investment-change/

Under Delaware law, (according to plaintiff atty David Thompson) if plaintiffs win, they are entitled to “pre-judgment” interest. It typically comes to, on the low end 6% annually (courts split on simple or compounded) from date of injury. This would be from Sept. 2012, the enactment of NWS. Total damages mean preferred final value ~150% of par. Rather than paying cash, this could be rolled into conversion.

 

Edit: this was posted with Todd's permission

 

I believe this relates to the Lamberth case (Delaware law) not the collins case (federal law).  collins might still have a federal interest accrual on payments in excess of the 10% moment.

 

Would you say greater than 100% of par is likely, not likely, unknowable?  I'm trying to place weights on various outcomes: 70% par, 80%, 90%, full, 110%, 120%, 130%, etc.

[DRValue]

@DR

 

I suppose the excess dividends could also be repaid by treasury by cancelling warrants having that agreed value.

 

Thanks Chris, I was imagining a scenario where Treasury avoids paying cash, so "gifting warrants" based on the current share price at the time, would seem a possibility. Assuming plaintiffs would accept a "thing" that expires in value...

[Guest cherzeca]

Thoughts?

 

https://www.valueplays.net/2019/05/31/subs-gse-investment-change/

Under Delaware law, (according to plaintiff atty David Thompson) if plaintiffs win, they are entitled to “pre-judgment” interest. It typically comes to, on the low end 6% annually (courts split on simple or compounded) from date of injury. This would be from Sept. 2012, the enactment of NWS. Total damages mean preferred final value ~150% of par. Rather than paying cash, this could be rolled into conversion.

 

Edit: this was posted with Todd's permission

 

I believe this relates to the Lamberth case (Delaware law) not the collins case (federal law).  collins might still have a federal interest accrual on payments in excess of the 10% moment.

 

Would you say greater than 100% of par is likely, not likely, unknowable?  I'm trying to place weights on various outcomes: 70% par, 80%, 90%, full, 110%, 120%, 130%, etc.

 

reasonable operating assumptions:

1. there will be a global settlement in connection with recap.

2. junior prefs agree by class to a exchange into common at or close to par.

3. some kind of private offering for common is first step before a large public offering.

4. this private offering will "set the price" for the common.  I expect this price will be relatively low, to entice private investor(s) to buy.  junior pref holders in favor on low common price as well.

5. once common private placement is done and some retained earnings build up, large common offering(s).

6. junior pref holders who hold their exchanged for common could see future price appreciation

[Luke 532]

 

reasonable operating assumptions:

1. there will be a global settlement in connection with recap.

2. junior prefs agree by class to a exchange into common at or close to par.

3. some kind of private offering for common is first step before a large public offering.

4. this private offering will "set the price" for the common.  I expect this price will be relatively low, to entice private investor(s) to buy.  junior pref holders in favor on low common price as well.

5. once common private placement is done and some retained earnings build up, large common offering(s).

6. junior pref holders who hold their exchanged for common could see future price appreciation

 

Thank you. So base assumption is par or slightly less, let's call it 90% of par, and then once converted it trades along with common because, well, it is common at that point.

[hardincap]

The Ps are not gamblers. I have to think they’d be happy with a quick settlement that gets them close to par, rather than getting greedy and risking a loss at scotus. The important thing to me is that now treasury has the political cover to pursue what is rationally in the best interests of all parties.

[Luke 532]

The Ps are not gamblers. I have to think they’d be happy with a quick settlement that gets them close to par, rather than getting greedy and risking a loss at scotus. The important thing to me is that now treasury has the political cover to pursue what is rationally in the best interests of all parties.

 

I tend to agree, but the reason I'm asking these questions is that a reliable source told me that the plaintiffs expect 150% of par and that par in their minds doesn't represent any compensation for the 7 years they've missed out on dividends due to the "potentially" illegal NWS.

[Guest cherzeca]

@Luke. yes re potential holding path forward.  and since I think the GSEs will have a lot of "prove it to me" potential investors who might join the bandwagon later and only if things go well, then price appreciation of common MAY surprise folks

 

@hardincap agreed.  I think par is a suitable line in the sand though.

 

I dont think there is any rational expectation that juniors get >par at the settlement stage...but only if hold exchanged common for awhile

[DRValue]

Could anyone kindly offer a summary of the outstanding lawsuits and how they are impacted by the Collins ruling? A big ask I know...

 

What I'm getting at is calabria said what they do will get rid of all the lawsuits.

 

Would plaintiff relief in Collins close all the other lawsuits?

 

It may mean a different approach to recap,  entirely.

 

Also, I can't see how paying dividends to treasury in conservatorship is possible, unless hera allows it specifically.

It doesn't seem to have featured prominently in any suits I've seen, save the one court hearing video I've seen featuring it. Unfortunately, I can't recall the suit. I think we've done that one to death but I still don't like it...

 

[Luke 532]

I tend to agree, but the reason I'm asking these questions is that a reliable source told me that the plaintiffs expect 150% of par and that par in their minds doesn't represent any compensation for the 7 years they've missed out on dividends due to the "potentially" illegal NWS.

 

Discussion from Todd Sullivan on plaintiffs seeking 150% of par.  Listen to minute marker 26:20 at the following link: https://valueplays.podbean.com/e/7-jun-14-2019/

 

The following quote is at 29:50...

"Based on the things I've heard and the people I've spoken to, they are really confident that 100% is their ground floor. And they're going to get damages.  Damages are going to be another 50-60% on top of their par.  That's not something they're looking at as a hopeful scenario, they're looking at it like this is what we'll be owed.  The government will argue differently but this is what we're going to get."

 

Note: this is from June, so long before the positive news from En Banc that we heard this past Friday.