Luke 532 Posted October 10, 2019 Posted October 10, 2019 Live event going on now at GMU (Fairfax, VA... about an hour outside of Washington, DC). In discussion at @MasonLEC, @FHFA Director @MarkCalabria publicly indicated #GSEs could leave conservatorship before hitting top capital threshold and operate under consent decree.
Guest cherzeca Posted October 10, 2019 Posted October 10, 2019 Live event going on now at GMU (Fairfax, VA... about an hour outside of Washington, DC). In discussion at @MasonLEC, @FHFA Director @MarkCalabria publicly indicated #GSEs could leave conservatorship before hitting top capital threshold and operate under consent decree. this is smart and reassuring.
Spekulatius Posted October 10, 2019 Posted October 10, 2019 @spek farmer's Mac shows a current pe of about 8.5x. moelis used a range based upon other financial institutions: https://gsesafetyandsoundness.com/wp-content/uploads/2018/11/Blueprint-for-Restoring-Safety-and-Soundness-to-the-GSEs-Final.pdf. p.27 Farmers Mac isn’t really the same business model, it’s income mostly comes from the net interest margin, while the GSE would be 2/3 fees and 1/3 interest income (roughly) The GSE would have a more stable income stream, specially in a low interest rate environment. AGM stock only took off after interest rates came off from zero.
Luke 532 Posted October 10, 2019 Posted October 10, 2019 Calabria hopes to have adviser in place by November. Attached...
Cox022 Posted October 10, 2019 Posted October 10, 2019 Thanks for the bloomberg screenshot. I cant help but notice it reads that the GSE's 'might have to operate under consent decrees.' If that is in fact a quote, I wonder under what circumstances would the GSE's 'have' to operate under consent decrees. My first reaction is that this indicates Calabria is in a hurry, but I'm not 100% sure if I'm thinking about that correctly yet. The wording of the ACG analytics tweet is different by suggesting they 'could' be released with a consent decree. I'm reading too much into it but I guess I'm just antsy for useful information!
Guest cherzeca Posted October 10, 2019 Posted October 10, 2019 @spek farmer's Mac shows a current pe of about 8.5x. moelis used a range based upon other financial institutions: https://gsesafetyandsoundness.com/wp-content/uploads/2018/11/Blueprint-for-Restoring-Safety-and-Soundness-to-the-GSEs-Final.pdf. p.27 Farmers Mac isn’t really the same business model, it’s income mostly comes from the net interest margin, while the GSE would be 2/3 fees and 1/3 interest income (roughly) The GSE would have a more stable income stream, specially in a low interest rate environment. AGM stock only took off after interest rates came off from zero. I expect g fees will be much more than 2/3 of income going forward
allnatural Posted October 11, 2019 Posted October 11, 2019 FHFA is reviewing a host of options to make Fannie and Freddie more profitable because the companies have to be attractive to potential investors in order to have successful share offerings, Calabria says FHFA hopes to have hired a financial adviser to offer expertise on Fannie and Freddie by the end of November, if not sooner, he says
Guest cherzeca Posted October 11, 2019 Posted October 11, 2019 "FHFA is reviewing a host of options to make Fannie and Freddie more profitable because the companies have to be attractive to potential investors in order to have successful share offerings, Calabria says" earth to Calabria: the GSEs are very profitable corps as they are. they can become more profitable on a per share basis to potential investors if treasury kills some warrants.
allnatural Posted October 11, 2019 Posted October 11, 2019 He can start by discontinuing to issue value destructive CRTs
DRValue Posted October 11, 2019 Posted October 11, 2019 He can start by discontinuing to issue value destructive CRTs Pursuing more profitability is a huge deal.
Guest cherzeca Posted October 11, 2019 Posted October 11, 2019 He can start by discontinuing to issue value destructive CRTs Pursuing more profitability is a huge deal. Agree. First time Calabria has said something that might actually help rather than hurt an offering. Must be talking to bankers
orthopa Posted October 12, 2019 Posted October 12, 2019 IMO I think the fact he even mentions the consent decrees means they will. If not needed, why even mention it? I think calabria continues to under promise but at some point will over deliver. What are your guys interpretations of the retained earnings projections? 9-18 months but when does the time period start? The latest batch of retained earnings is from Q2 so are we already at 4 months of retained earnings? 9 months is 3 quarters and we are already on the second quarter of retained earnings in a couple weeks. Next is obviously 4th amendment and capital rule but what gets GSEs to point capital wise to operate under a consent decree sooner? Private placement?
Guest cherzeca Posted October 12, 2019 Posted October 12, 2019 @orthopa I think fhfa and treasury have been sounding out the bankers more than they are letting on. first, the whole notion of transitioning out of conservatorship and into consent decree in connection with an offering. no new investors want to put money into a conservatorship-run issuer...lest that Lazarus Parrott reemerges. second, laying groundwork for some retained earnings capital before the first offering. bankers said there should be a small cushion before any new investors jump into the pool. how many Qs? depends on market conditions. third, calabria just mentioned improving GSE profits. he doesn't know profits from Adam, he is an economist. some adult banker told him stop talking about reducing footprints and increasing competition. the sense I am getting is some banker collared calabria before it was too late...thankfully
allnatural Posted October 12, 2019 Posted October 12, 2019 Looking to make the GSEs more profitable in order to for them to be attractive to potential investors is a very important statement from Calabria as it is a 180 change from his previous views. Twice in the past 1-2 months when he was asked about how the GSEs will attract investors while simultaneously making them less attractive via reducing their footprints, Calabria said that's not his problem, but for Fannie and Freddie to figure out. All of a sudden the FHFA itself is looking at how to make the GSEs more profitable specifically so they will be attractive to potential investors... Seems like someone told him it IS his problem to figure out.
Williams406 Posted October 12, 2019 Posted October 12, 2019 "...Calabria said that's not his problem, but for Fannie and Freddie to figure out." Over the past month, in spite of developments that are on the right track, this attitude from Calabria has given me pause/driven me nuts. His agency did this to the GSE's, even if HE didn't. Very glad to see the apparent adjustment. As cherzeca speculates, likely due to bankers giving him the what for.
rros Posted October 12, 2019 Posted October 12, 2019 @orthopa I think fhfa and treasury have been sounding out the bankers more than they are letting on. first, the whole notion of transitioning out of conservatorship and into consent decree in connection with an offering. no new investors want to put money into a conservatorship-run issuer...lest that Lazarus Parrott reemerges. second, laying groundwork for some retained earnings capital before the first offering. bankers said there should be a small cushion before any new investors jump into the pool. how many Qs? depends on market conditions. third, calabria just mentioned improving GSE profits. he doesn't know profits from Adam, he is an economist. some adult banker told him stop talking about reducing footprints and increasing competition. the sense I am getting is some banker collared calabria before it was too late...thankfully I have a slightly darker take. During the summer Calabria backed off big time. Whether it was the GSEs debt spreads widening or perhaps them realizing there was no appetite for an immediate IPO, delaying and more work was in order. Could be bankers suggesting a better road map. Or simply their own stark realization that taking them private is more difficult than anticipated what is leading to "consent decrees, improved earnings, etc." trial balloons. If the latter, them realizing the road to an IPO is tough the danger lies in arriving at the wrong diagnose. LocusofTexas words come to mind: "shoddy treatment of past investors" may be just the only reason for new investors' cold feet.
Guest cherzeca Posted October 12, 2019 Posted October 12, 2019 @rros it would have been prudent for fhfa/treasury to sound out bankers about what they thought was achievable and for free advice. I expect they did so, and what they heard back was that you can't issue new shares unless there is already some capital cushion, and the GSEs must be out of conservatorship when they do (of course unless SCOTUS affirms the willett opinion beforehand). and oh by the way, enough of the talk about making the GSEs less profitable though competition and footprint reduction. this is all good and as I have said somewhat reassuring to me.
rros Posted October 13, 2019 Posted October 13, 2019 @rros it would have been prudent for fhfa/treasury to sound out bankers about what they thought was achievable and for free advice. I expect they did so, and what they heard back was that you can't issue new shares unless there is already some capital cushion, and the GSEs must be out of conservatorship when they do (of course unless SCOTUS affirms the willett opinion beforehand). and oh by the way, enough of the talk about making the GSEs less profitable though competition and footprint reduction. this is all good and as I have said somewhat reassuring to me. I agree that they may have consulted VIPs and may have heard some proper advise. All constructive from the sell-side. But the bankers they may have consulted with may not be the same end-user that will be funding an IPO (final investors buying shares). It is in this last part of the equation that the question mark arises: will there be anybody willing to buy these companies when -even today- Treasury is not backing down from their horrible treatment of investors? I did cut my stake during the summer and I now keep a smaller chunk for the long-haul (after holding steady for 9 years). My message today to Treasury is "f*** ***".
Guest cherzeca Posted October 14, 2019 Posted October 14, 2019 @rros "will there be anybody willing to buy these companies when -even today- Treasury is not backing down from their horrible treatment of investors?" this is the crux of the issue going forward and I have given some thought to it. where I came out is that investors should appreciate that the "superpower" for evil exhibited in connection with the NWS was attributable to conservatorship and, of course, was not even a proper superpower assuming that collins en banc is not overturned by SCOTUS. so any course of action going forward needs to get the GSEs out of conservatorship prior to any offering, and I was pleased to see that fhfa is planning for this with its "consent decree" phase. the other issue is how much if anything will Treasury keep of its senior pref, and what it does with its warrants. while Bove made much of the increasing senior pref amount in connection with the letter agt halt to the sweep, I cant imagine that Treasury would have done it differently, for that would be tantamount to a deal to reduce the senior pref, and that is a deal done with Ps in settlement of the litigation. so while I have no love loss for the govt in this saga, I dont sent see it acting in ways now that are adverse to a potential recap...it's all just going to take longer than we would like
rros Posted October 14, 2019 Posted October 14, 2019 @rros "will there be anybody willing to buy these companies when -even today- Treasury is not backing down from their horrible treatment of investors?" this is the crux of the issue going forward and I have given some thought to it. where I came out is that investors should appreciate that the "superpower" for evil exhibited in connection with the NWS was attributable to conservatorship and, of course, was not even a proper superpower assuming that collins en banc is not overturned by SCOTUS. so any course of action going forward needs to get the GSEs out of conservatorship prior to any offering, and I was pleased to see that fhfa is planning for this with its "consent decree" phase. the other issue is how much if anything will Treasury keep of its senior pref, and what it does with its warrants. while Bove made much of the increasing senior pref amount in connection with the letter agt halt to the sweep, I cant imagine that Treasury would have done it differently, for that would be tantamount to a deal to reduce the senior pref, and that is a deal done with Ps in settlement of the litigation. so while I have no love loss for the govt in this saga, I dont sent see it acting in ways now that are adverse to a potential recap...it's all just going to take longer than we would like No, not adverse. Recap is coming one way or another. I agree again with your points but that bitter after-taste remains. Unless there is a last minute saving grace. Like Trump issuing an eo cancelling them out completely right before they have all ipo ducks in a row. Given the last JumpStart included an express prohibition to the Admin to take any such action I believe it is entirely within his power. Or Treasury's. Although I am sure Trump would love to sign this and Mnuchin will more than oblige.
Luke 532 Posted October 14, 2019 Posted October 14, 2019 Tomorrow... An update in Bhatti vs. FHFA: The Eighth Circuit will hear oral argument in Bhatti v. FHFA at 9:00 a.m. on Tues., Oct. 15, 2019, in St. Paul, Minn., before Judges Lavenski R. Smith, Raymond W. Gruender and Duane Benton. all 3 judges appointed by a bush
Guest cherzeca Posted October 14, 2019 Posted October 14, 2019 fwiw, found this write up on FNMAS on VIC: https://www.valueinvestorsclub.com/idea/FEDERAL_NATIONAL_MORTGA_ASSN/4975387968 you likely will have to sign up (provide email etc) to get access. it is more of a survey than an analysis, but it is a good survey
DRValue Posted October 15, 2019 Posted October 15, 2019 Tomorrow... An update in Bhatti vs. FHFA: The Eighth Circuit will hear oral argument in Bhatti v. FHFA at 9:00 a.m. on Tues., Oct. 15, 2019, in St. Paul, Minn., before Judges Lavenski R. Smith, Raymond W. Gruender and Duane Benton. all 3 judges appointed by a bush "We are live at the courthouse in St. Paul, MN, for the hearing of Bhatti v. #FHFA, begins at 9am Central Time. Research note coming to clients after! #GSEs #housingfinance #8thCircuit" I expect they'll put some things on Twitter, hopefully.
Luke 532 Posted October 15, 2019 Posted October 15, 2019 Tomorrow... An update in Bhatti vs. FHFA: The Eighth Circuit will hear oral argument in Bhatti v. FHFA at 9:00 a.m. on Tues., Oct. 15, 2019, in St. Paul, Minn., before Judges Lavenski R. Smith, Raymond W. Gruender and Duane Benton. all 3 judges appointed by a bush Audio recording: http://media-oa.ca8.uscourts.gov/OAaudio/2019/10/182506.MP3
rros Posted October 15, 2019 Posted October 15, 2019 Tomorrow... An update in Bhatti vs. FHFA: The Eighth Circuit will hear oral argument in Bhatti v. FHFA at 9:00 a.m. on Tues., Oct. 15, 2019, in St. Paul, Minn., before Judges Lavenski R. Smith, Raymond W. Gruender and Duane Benton. all 3 judges appointed by a bush Audio recording: http://media-oa.ca8.uscourts.gov/OAaudio/2019/10/182506.MP3 Thank you, Luke 5:32.
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