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

[Luke 532]

Dick Bove sent out an e-mail this morning. 

 

“The pressure is on for the FHFA to come up with a plan for the GSEs before year-end.  There is now a possibility that preferred shareholders will receive $31 per share for their stock.  Common shares continue to hold no appeal to me”

[Luke 532]

Treasury Secretary Mnuchin tells @BeckyQuick that @realDonaldTrump “has approved” his plan to reform @FannieMae @FreddieMac @SquawkCNBC

[Mephistopheles]

Dick Bove sent out an e-mail this morning. 

 

“The pressure is on for the FHFA to come up with a plan for the GSEs before year-end.  There is now a possibility that preferred shareholders will receive $31 per share for their stock.  Common shares continue to hold no appeal to me”

 

$31?? That's piss poor

[muscleman]

Also, buying more prefs on Monday. Bash and sell please.

 

The ideal situation is that all talking heads are bashing while the stock mysteriously inches up. Right now we have all good news blowing but stock steadily going down, which is the opposite.

I am still waiting for the ship to turn before buying

[Midas79]

Dick Bove sent out an e-mail this morning. 

 

“The pressure is on for the FHFA to come up with a plan for the GSEs before year-end.  There is now a possibility that preferred shareholders will receive $31 per share for their stock.  Common shares continue to hold no appeal to me”

 

$31?? That's piss poor

 

He probably meant on the $25-par shares. 125% of par would certainly be fine with me but I'm not going to hold my breath.

[Guest cherzeca]

Also, buying more prefs on Monday. Bash and sell please.

 

The ideal situation is that all talking heads are bashing while the stock mysteriously inches up. Right now we have all good news blowing but stock steadily going down, which is the opposite.

I am still waiting for the ship to turn before buying

 

while waiting for your ship to set sail the train may be leaving the station

[Guest cherzeca]

Dick Bove sent out an e-mail this morning. 

 

“The pressure is on for the FHFA to come up with a plan for the GSEs before year-end.  There is now a possibility that preferred shareholders will receive $31 per share for their stock.  Common shares continue to hold no appeal to me”

 

$31?? That's piss poor

 

He probably meant on the $25-par shares. 125% of par would certainly be fine with me but I'm not going to hold my breath.

 

never have been impressed with bove.  another example is this, not using % of par. may not even realize there are some $50 par prefs

[muscleman]

Also, buying more prefs on Monday. Bash and sell please.

 

The ideal situation is that all talking heads are bashing while the stock mysteriously inches up. Right now we have all good news blowing but stock steadily going down, which is the opposite.

I am still waiting for the ship to turn before buying

 

while waiting for your ship to set sail the train may be leaving the station

 

I am no longer a value investor. I am very disciplined, and if the ship leaves the station, I'll find another stock to buy.

I also don't even care if I am buying at the lowest price anymore. What I care about is the EXPECTED return should be highest when I buy, not the highest return when the OPTIMAL situation happens.

 

[SnarkyPuppy]

Downside risk: 

 

Buffett takes 51% of post govt warrant common stock + govt keeps 49%.  Government and Buffett split settlement payment to large private litigating shareholders and we expire worthless. 

 

Thoughts?

[Guest cherzeca]

Downside risk: 

 

Buffett takes 51% of post govt warrant common stock + govt keeps 49%.  Government and Buffett split settlement payment to large private litigating shareholders and we expire worthless. 

 

Thoughts?

 

asteroids.  dont forget about asteroids. 

 

imo there are many relatively small risk tail scenarios in which we lose.  the higher probability result is some sort of positive outcome, though we can agree that none of us knows what that outcome will be, or how likely

 

EDIT:  https://www.thesun.co.uk/tech/9912329/interstellar-space-object-solar-system/

[Jcmeg35]

While I don't think it is a great idea to rely on "smart" money. I think, in an instance like this, if one is aligned with very large sophisticated investors with deep pockets, it provides some peace of mind that we are not going to get "screwed". 

 

I know some have talked about the risk of preferential settlement treatment for the large institutional holders of preferred vs. the small guy. I think it is important to keep in mind that the optics of this would be horrific for Treasury, and based on how this has been playing out, it is clear that Mnuchin and co are mindful of the optics. Hence giving congress as many opportunities as possible, and the need for, potentially, excessively capitalized companies.

 

Downside risk: 

 

Buffett takes 51% of post govt warrant common stock + govt keeps 49%.  Government and Buffett split settlement payment to large private litigating shareholders and we expire worthless. 

 

Thoughts?

[Cox022]

Just pointing out peculiar word choice and phrasing from Mnuchin on CNBC today at 12:00.  https://www.cnbc.com/2019/09/12/treasury-secretary-mnuchin-says-trump-has-approved-reform-plan-for-fannie-mae-and-freddie-mac.html?__source=sharebar|twitter&par=sharebar

 

"What we would be doing is allowing Fannie Mae and Freddie mac to increase capital, and that’s an important step on the way to recapitalizing them.  And what we are negotiating is making sure the taxpayers receive proper compensation for that delay."

 

The simplest explanation is that he just meant 'compensation for deferred or forgone dividends' but I thought I'd point that out in case anyone else saw a different meaning.

 

 

[Luke 532]

Just pointing out peculiar word choice and phrasing from Mnuchin...

 

I found this word choice interesting as well, using "amendment"... could the amendment be done this month instead of simply replacing sweep with commitment fee?  Could things on the amendment be done prior to December?  Very interesting if so, but probably he wasn't choosing his words carefully and he just meant NWS replaced by commitment fee...

https://www.reuters.com/article/us-usa-treasury-housing/u-s-treasury-eyes-action-on-fannie-mae-freddie-mac-by-months-end-mnuchin-idUSKCN1VX1NM

“That’s something that the FHFA (Federal Housing Finance Agency) and we are working on. We are actively negotiating an amendment, and I think our objective is to try to get it done by the end of the month,” Mnuchin told CNBC in an interview.

[Cox022]

Just pointing out peculiar word choice and phrasing from Mnuchin...

 

I found this word choice interesting as well, using "amendment"... could the amendment be done this month instead of simply replacing sweep with commitment fee?  Could things on the amendment be done prior to December?  Very interesting if so, but probably he wasn't choosing his words carefully and he just meant NWS replaced by commitment fee...

https://www.reuters.com/article/us-usa-treasury-housing/u-s-treasury-eyes-action-on-fannie-mae-freddie-mac-by-months-end-mnuchin-idUSKCN1VX1NM

“That’s something that the FHFA (Federal Housing Finance Agency) and we are working on. We are actively negotiating an amendment, and I think our objective is to try to get it done by the end of the month,” Mnuchin told CNBC in an interview.

 

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

This was from April, just FYI.  Not sure what to conclude, if anything. 

 

He has no immediate plans to curtail the existing sweep of the companies’ profits to the Treasury Department, part of an arrangement related to the firms’ conservatorship.  Such a move would allow the firms to keep profits and begin to build up capital, eventually operating without taxpayer support. The change could be considered as part of a separate package of changes negotiated with Treasury, he said, adding he doesn’t wish to amend the existing arrangement more than once. Allowing the pair to retain their profits is widely seen as an initial step toward ending the conservatorship.

[Luke 532]

Recording of the Investors Unite conference call...

https://investorsunite.org/wp-content/uploads/2019/09/GSE-091119.mp3

[orthopa]

Just pointing out peculiar word choice and phrasing from Mnuchin...

 

I found this word choice interesting as well, using "amendment"... could the amendment be done this month instead of simply replacing sweep with commitment fee?  Could things on the amendment be done prior to December?  Very interesting if so, but probably he wasn't choosing his words carefully and he just meant NWS replaced by commitment fee...

https://www.reuters.com/article/us-usa-treasury-housing/u-s-treasury-eyes-action-on-fannie-mae-freddie-mac-by-months-end-mnuchin-idUSKCN1VX1NM

“That’s something that the FHFA (Federal Housing Finance Agency) and we are working on. We are actively negotiating an amendment, and I think our objective is to try to get it done by the end of the month,” Mnuchin told CNBC in an interview.

 

Your right it certainly could have been choice of words but what the hell would take 90 more days to work on a final amendment? You know full well Calabria and Mnuchin have been discussing this for months and know what they are going to do. Your telling me they are just negotiating this now? They havent modeled this stuff out from start to finish ie Treasury Plan release to recap? Of course they have. Just write the damn amendment, negotiate terms and lets go.

 

I do have to say hearing the CNBC interview my impression was he was implying a new final amendment not just stopping the NWS as he says "amendment by the end of the month". He also said 90 days working with congress. He said 3-6 months I think last week on Fox business news but I think the SBC hearing and the recent lawsuit result has moved things up internally in the treasury.

 

3 months puts us 1st of the year, 11 months to election. Absolutely no reason why IMO why FHFA captial rules are not out (I believe they are done already and if not only due to recap scenarios being worked out) and final amendment not done by 1st of 2020.  At that point lets go with the recap plan. I know Calabria recently said will retain a year of earnings next year but he also said IPO in early 2020.

 

Treasury and FHFA may not have come out and said it but I think the recent ruling really has moved things up in regards to acting. I think if there is a final amendment by end of Sept and not just ending NWS there is no question this is the case and I think capital plan out/action by early 2020 is a very high likelyhood.  Maybe they are relieved as this is what they wanted anyway.

 

I think after years of waiting all of these interviews/comments by Mnuchin and Calabria (urgency and hints more and more every day) we are going to be presently surprised for once both on what happens and how fast.

[Luke 532]

Calabria today: https://www.cnbc.com/video/2019/09/12/fannie-freddie-regulator-on-next-steps-in-mortgage-market-reform.html

[Guest cherzeca]

Calabria today: https://www.cnbc.com/video/2019/09/12/fannie-freddie-regulator-on-next-steps-in-mortgage-market-reform.html

 

mnuchin said 3 months for congress to act (previously 3-6). so retaining earnings for 2nd/3rdQs before considering public offering not upsetting...gives Calabria time to issue final capital rule, if he would stop granting stupid interviews

 

notice Calabria sidestepped the APA holding.  3 month period gives time to decide whether to file cert (would be interlocutory appeal, so SG may not do it and SCOTUS may not take it up)

[orthopa]

FWIW lot of time in front of the camera for these two since the treasury plan release. No pushback outside of Brown just being a retard during the hearing, no pushback, no enriching hedge fund bullshit.

[Midas79]

Calabria might allow release before all the capital is built? That is a huge game-changer if true.

 

https://twitter.com/KatyODonnell_/status/1172262431671881743

Calabria talked next steps in an all-staff mtg today -- raising capital buffer in a limited way and having GSEs operate under a consent agreement at point where they have enough $ to leave conservatorship but not enough to fully comply w/ new capital rules

[Guest cherzeca]

Calabria might allow release before all the capital is built? That is a huge game-changer if true.

 

https://twitter.com/KatyODonnell_/status/1172262431671881743

Calabria talked next steps in an all-staff mtg today -- raising capital buffer in a limited way and having GSEs operate under a consent agreement at point where they have enough $ to leave conservatorship but not enough to fully comply w/ new capital rules

 

if true, this makes a lot of sense. investor feedback may have been GSE cash flows, yes, run by a conservator with still undefined powers, no.  get out of conservatorship before raise money, and "consent agreement" lays out operational parameters until capital rule level is reached

[Midas79]

if true, this makes a lot of sense. investor feedback may have been GSE cash flows, yes, run by a conservator with still undefined powers, no.  get out of conservatorship before raise money, and "consent agreement" lays out operational parameters until capital rule level is reached

 

I took it the other way: instead of retaining earnings for a while and then doing an IPO to build the rest of the capital, it would be the reverse. Do a large IPO soon, though not large enough to get all the way to fully capitalized, and release FnF upon its completion. That's how you get the money to invest, by promising them voting rights immediately. Then FnF would build up enough capital via earnings to meet the requirements over time.

 

We did hear both Mnuchin and Calabria say that third-party capital was going to be needed. It can't be all retained earnings.

 

My assumption had been that there is enough investor appetite to do both at once, as in a $150B one-shot IPO that completely fulfills Calabria's capital requirements with release happening immediately after. It appears that assumption was incorrect for one reason or another.

[Midas79]

What exactly is a consent decree?

 

https://twitter.com/HoldenWalker99/status/1172302913227522048

[Guest cherzeca]

What exactly is a consent decree?

 

https://twitter.com/HoldenWalker99/status/1172302913227522048

 

my suspicion is that Phillips heard from big investors that they wouldn't put up big bucks into GSEs until they were released from conservatorship. govt takes position that conservator has unfettered power and that is anathema to any new large investors. of course the collins APA opinion helps but I would think that investor position stands.  once the GSEs are released from conservatorship then all of these statutory powers go away.  of course this is a catch-22 if fhfa doesn't want to release the GSEs until they have raised capital sufficient to meet the capital rule.

 

so it would be smart to bifurcate the process, and have GSEs retain enough earnings to have a more substantial capital buffer, something investors wont vomit at if asked to invest in, and then end the conservatorship by segueing into an agreement (between fhfa and the GSEs, modeled on a consent decree except not something that needs to be blessed by a court) which governs the GSEs activity outside conservatorship.  some of the items binding the GSEs would presumably go away once the GSEs achieve their capital rule level.  but since there is no conservator lording over the GSEs with almighty conservator powers investors wont vomit at the prospect of investing in the GSEs.

 

this is the type of thinking that I suspect comes from Phillips two year study, including talking to investors.

[orthopa]

Partly to help myself think this out but per HoldenWalker99 on twitter one way Treasury could get FnF to statutory capital levels then regulatory levels is to first let the GSEs start to retain capital via letter agreement before Sept 30. Start to retain capital. Then cancel Sr Preferred. Jr preferred then would contribute 33B to core capital. Retained earnings would build over time to get to DFAST level of 43B in capital. Then operate under consent decree until remainder of capital raised.

 

I would think preferred would immediately trade to par once the Senior preferred are cancelled in this scenario as they would be counting towards core capital.