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

[Guest cherzeca]

Mnuchin prepared remarks for Tuesday...

Thank you. It is clear from his prepared remarks how much needed that explicit guarantee is for the normalcy of the GSEs debt market.

So a) narrow, explicit, paid-for guarantee; b) charter away. My guess, Brown is not going to like neither a) nor b). And given how clear Treasury's path is there may not be much talk about the 5cc ruling. Treasury will still work with FHFA on a 4th amendment, anyway and anyday.

 

brown will piss all over congressional reform, and warren if she shows up wont piss on it, she'll be all #2.

[Midas79]

What happens if the Collins case gets settled before Judge Atlas makes a ruling? Can Calabria still be fired at will by the president, or will it be as if the case had never happened, meaning that the en banc ruling would not be in force and Calabria would continue to enjoy for-cause removal protection?

 

If it's the latter, that could be a carrot the plaintiffs could dangle for FHFA in settlement talks, allowing Calabria to stay in office until 2024 as long as he doesn't do something really stupid.

[Guest cherzeca]

What happens if the Collins case gets settled before Judge Atlas makes a ruling? Can Calabria still be fired at will by the president, or will it be as if the case had never happened, meaning that the en banc ruling would not be in force and Calabria would continue to enjoy for-cause removal protection?

 

If it's the latter, that could be a carrot the plaintiffs could dangle for FHFA in settlement talks, allowing Calabria to stay in office until 2024 as long as he doesn't do something really stupid.

 

Collins en banc cannot be undone by settlement. Fhfa removal for cause will be uncertain until scotus clarifies

[rros]

Link to hearing. 10am est

 

https://www.banking.senate.gov/hearings/housing-finance-reform-next-steps

[Midas79]

Link to hearing. 10am est

 

https://www.banking.senate.gov/hearings/housing-finance-reform-next-steps

 

Exactly what I was looking for. Thanks!

[rros]

Mnuchin prepared remarks for Tuesday...

Thank you. It is clear from his prepared remarks how much needed that explicit guarantee is for the normalcy of the GSEs debt market.

So a) narrow, explicit, paid-for guarantee; b) charter away. My guess, Brown is not going to like neither a) nor b). And given how clear Treasury's path is there may not be much talk about the 5cc ruling. Treasury will still work with FHFA on a 4th amendment, anyway and anyday.

 

brown will piss all over congressional reform, and warren if she shows up wont piss on it, she'll be all #2.

lol looks like Sherrod Brown didn't need any help from Warren to spew his hate of wall st.

[Guest cherzeca]

Link to hearing. 10am est

 

https://www.banking.senate.gov/hearings/housing-finance-reform-next-steps

 

 

[orthopa]

NWS ending by the end of this month seems a certainty by now by Mnuchins comments.

[Midas79]

NWS ending by the end of this month seems a certainty by now by Mnuchins comments.

 

Yes. It would make far more sense to do it before September ends than drag into October and possibly have to deal with one more payment.

 

Might the September 30 payment still be made because it was for Q2's earnings? Or was June's NWS payment the last one ever? This could matter if Treasury tries to keep some or all of the $25B overage (perhaps soon to be more) as part of settling the court cases; they are evidently thinking about appealing the Count I ruling from the Fifth Circuit per Mnuchin's short pre-hearing interview this morning.

 

It seems either ironic or carefully planned that the NWS will be ended by the administration just after a court finally called it ultra vires.

[Guest cherzeca]

my biggest fear was that sen. crapo would ask admin reform to stop pending congressional analysis of plan suggestions for congressional reform, and he did the EXACT OPPOSITE. crapo encouraged the administration to ACT

 

so the rest of this SBC hearing is gravy for me

[investorG]

we will see but ideally the purpose of mnuchin's commentary to olick on CNBCTV about appealing Collins to the supreme court was a warning shot to the plaintiffs to avoid unnecessary greed in any potential negotiations.

[Guest cherzeca]

NWS ending by the end of this month seems a certainty by now by Mnuchins comments.

 

Yes. It would make far more sense to do it before September ends than drag into October and possibly have to deal with one more payment.

 

Might the September 30 payment still be made because it was for Q2's earnings? Or was June's NWS payment the last one ever? This could matter if Treasury tries to keep some or all of the $25B overage (perhaps soon to be more) as part of settling the court cases; they are evidently thinking about appealing the Count I ruling from the Fifth Circuit per Mnuchin's short pre-hearing interview this morning.

 

It seems either ironic or carefully planned that the NWS will be ended by the administration just after a court finally called it ultra vires.

 

based on what I heard and how it was said, I expect the 2Q distribution to be not made.  that does not mean the senior preferred will vanish at this time, but it is an important first step

[Guest cherzeca]

we will see but ideally the purpose of mnuchin's commentary to olick on CNBCTV about appealing Collins to the supreme court was a warning shot to the plaintiffs to avoid unnecessary greed in any potential negotiations.

 

of course Ds will file cert petition to scotus because if they dont do that, on 10/29/19 the collins district court will receive an order from the 5th C to implement relief in accordance with the 5th C en banc majority APA opinion

[rros]

we will see but ideally the purpose of mnuchin's commentary to olick on CNBCTV about appealing Collins to the supreme court was a warning shot to the plaintiffs to avoid unnecessary greed in any potential negotiations.

Berkowitz will have his 5 bagger. Is not that enough? What are people thinking!

 

It seems either ironic or carefully planned that the NWS will be ended by the administration just after a court finally called it ultra vires.

But Midas, we are talking the Treasury of the United States of America. The greatest pirate ever!

[Midas79]

we will see but ideally the purpose of mnuchin's commentary to olick on CNBCTV about appealing Collins to the supreme court was a warning shot to the plaintiffs to avoid unnecessary greed in any potential negotiations.

 

Certainly plausible. But if the administration ends the NWS by themselves, what exactly is there for them to appeal? Injunction would not be an issue, and any potential damages award by Judge Atlas would leave open its own opportunity for appeal.

[Luke 532]

my biggest fear was that sen. crapo would ask admin reform to stop pending congressional analysis of plan suggestions for congressional reform, and he did the EXACT OPPOSITE. crapo encouraged the administration to ACT

 

so the rest of this SBC hearing is gravy for me

 

Kennedy to Calabria: "I encourage you to saddle up and go!... Congress is going to do nothing, you need to get started and fix this car wreck."

[DRValue]

Mnuchin says more like 100b capital needed. That's 60b for Fannie and 40b for Freddie. This is the alternate bifurcated standard that they advocated for in their capital level comments.

[orthopa]

Mnuchin says more like 100b capital needed. That's 60b for Fannie and 40b for Freddie. This is the alternate bifurcated standard that they advocated for in their capital level comments.

 

Moelis has projection of 100B in captial with price before 10% appreciation at $11.73 @ 8.4 eps. That projects sweep ending in Q4 18 so will need to adjust for money swept of 3.2B+2.4B+/- 3.4B. So will need additional 5.9-9.3Billion. Just need to project for likely higher preferred capital conversion and could get pretty close to where things may end up. so $9-10 per share not withstanding any other "private capital". So a double from here?

[DRValue]

Mnuchin says compensation required for retaining capital as part of pspa. Specifically mentioned commitment fee an option. I'm now not expecting an increase in liquidation preference.

[Guest cherzeca]

Mnuchin says compensation required for retaining capital as part of pspa. Specifically mentioned commitment fee an option. I'm now not expecting an increase in liquidation preference.

 

it doesn't matter.  no capital can be raised with an outstanding $117B senior preferred preference.  this will have to be cleaned out before capital raise begins but, of course, need not before sweep ends

[Midas79]

Moelis has projection of 100B in captial with price before 10% appreciation at $11.73 @ 8.4 eps. That projects sweep ending in Q4 18 so will need to adjust for money swept of 3.2B+2.4B+/- 3.4B. So will need additional 5.9-9.3Billion. Just need to project for likely higher preferred capital conversion and could get pretty close to where things may end up. so $9-10 per share not withstanding any other "private capital". So a double from here?

 

I would be extremely careful when trying to apply the Moelis plan.

 

• It includes all of 2021's earnings being retained towards the capital base. You will have to add that to the equity raise too.
  
• Page 25 has the earnings projections, which exceed earnings from 2014-2018 by a decent amount. The administration's talk of reducing FnF's footprint directly counters this. I would expect FnF's earnings to go down post-conservatorship, not up.
  
• It has the juniors converting at 1.75 to 1, when the market ratio is more than twice that. Why would they accept such a bad conversion ratio?
  
• The SPO investors get less than half of the equity in return for $75B in capital. They are providing the lion's share of the capital and are in a position of strength. Are they really going to settle for that little, especially with footprint reduction looming?
  
• I also wouldn't take the $100B ball that Mnuchin lobbed and take off with it just yet. Calabria will be setting the final capital requirements, and he pegged it at "years and years" of retained earnings. I don't think he meant 4 or 5, which is what $100B would represent.
  
• Perhaps the biggest red flag: why would junior preferred shareholders pay for and release a plan that involves the common shares gaining so much more than the juniors?
  

[orthopa]

Moelis has projection of 100B in captial with price before 10% appreciation at $11.73 @ 8.4 eps. That projects sweep ending in Q4 18 so will need to adjust for money swept of 3.2B+2.4B+/- 3.4B. So will need additional 5.9-9.3Billion. Just need to project for likely higher preferred capital conversion and could get pretty close to where things may end up. so $9-10 per share not withstanding any other "private capital". So a double from here?

 

I would be extremely careful when trying to apply the Moelis plan.

 

• It includes all of 2021's earnings being retained towards the capital base. You will have to add that to the equity raise too.
  
• Page 25 has the earnings projections, which exceed earnings from 2014-2018 by a decent amount. The administration's talk of reducing FnF's footprint directly counters this. I would expect FnF's earnings to go down post-conservatorship, not up.
  
• It has the juniors converting at 1.75 to 1, when the market ratio is more than twice that. Why would they accept such a bad conversion ratio?
  
• The SPO investors get less than half of the equity in return for $75B in capital. They are providing the lion's share of the capital and are in a position of strength. Are they really going to settle for that little, especially with footprint reduction looming?
  
• I also wouldn't take the $100B ball that Mnuchin lobbed and take off with it just yet. Calabria will be setting the final capital requirements, and he pegged it at "years and years" of retained earnings. I don't think he meant 4 or 5, which is what $100B would represent.
  

 

I agree on the caution and overlooked the 2021 retained earnings as you point out. Im too lazy to run the numbers but with preferred ~ a double from here depending on class IMO it still doesn't look like common clears the hurdle vs preferred  based on my superficial assessment in addition to what you said.

[orthopa]

Taking the last couple of days unless you think preferred gets less then 50%ish in a conversion it makes sense to keep adding or even lever up if you have the balls.  8)

[Luke 532]

Taking the last couple of days unless you think preferred gets less then 50%ish in a conversion it makes sense to keep adding or even lever up if you have the balls.  8)

 

These things are still so insanely cheap.  Heck, some at 41% of par (FMCCL)!

[DRValue]

Taking the last couple of days unless you think preferred gets less then 50%ish in a conversion it makes sense to keep adding or even lever up if you have the balls.  8)

 

These things are still so insanely cheap.  Heck, some at 41% of par (FMCCL)!

 

Are they liquid enough to buy though? Is that the ask?