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

[Wiggins]

The level of corruption in the financial media is to be expected and nothing new. It should not come as any surprise. Michael Lewis and Tim Howard have documented it amply. One doesn't need overweening skepticism to see this, just a reading of "The Big Short" and "Mortgage Wars" will do.

[Luke 532]

https://www.wsj.com/articles/the-white-house-wants-to-privatize-fannie-and-freddie-it-needs-wall-streets-help-11571845492

 

Attached...

[DRValue]

Attached...

 

B-but Bloomberg told me receivership...

[james22]

here imo is a perfect example of how current pricing by mr. market is something to take advantage of, rather than take instruction from.

 

Agree.

 

I'm at 15% (my limit), but have to think about adding if continues to fall.

 

 

[orthopa]

Attached...

 

Luke is this in an article?

[orthopa]

@IG

 

more to my point.

 

apparently GSEs are down big today because market believes that there is a material risk that the GSEs will go into receivership (based upon throw away lines from calabria and mnuchin to hostile questioning at HFSC hearing yesterday, and amplified by Bloomberg reporting).  I disagree with this assessment.  here imo is a perfect example of how current pricing by mr. market is something to take advantage of, rather than take instruction from.

 

I of course may be wrong, but I do believe that a commitment to a GSE investment requires an almost overweening skepticism of market pricing of GSEs

 

Even someone who has followed the GSEs for 6 months (certainty not the 6 plus year as I have) could see though the comments yesterday. FHFA is hiring a financial advisor to raise capital for gods sakes right now! Even a half ass attention span could see through and piece together Calabrias comments since he was confirmed.

 

Ill tell you what I see as a silver lining in this, the market believes this receivership threat. Congress maybe, the general public could give two shits but Calabria and Mnuchin did their job in front of hostile questioning that at some points got to the core of why this is going to happen in my belief (Paulson).  They continue to cast doubt on the process just enough to make this look like they looked at all options, protected the tax payer, and were left with no other option. Calabria can say now yeah I told you guys i was ok wiping shareholders out like I said at the hearing.....but I had no other option but to enrich them because that was the best path and I followed the law like I told you I would.

[Luke 532]

Attached...

 

Luke is this in an article?

 

https://www.wsj.com/articles/the-white-house-wants-to-privatize-fannie-and-freddie-it-needs-wall-streets-help-11571845492

[Guest cherzeca]

Attached...

 

Luke is this in an article?

 

from wsj article:

 

"Executives at Bank of America Corp. BAC +0.38% , Citigroup Inc., Goldman Sachs Group Inc., GS +0.60% JPMorgan Chase JPM -0.08% & Co. and Morgan Stanley in recent months have talked with the Treasury Department and Fannie and Freddie’s regulator about how a capital raise could work, said people familiar with the matter.

 

There are no indications the government has begun a formal process for hiring banks on a capital raise, and it could be a hard sell to investors. Still, several, including Bank of America, Citigroup and Goldman, have begun preparing internally to win a role in what could be a landmark event, these people said."

 

this is as I thought.  deciding to go to a consent decree phase and building up capital first are two likely takeaways from these early meetings.  and if these banks are sizing up the opportunity, I would expect that they are talking to big money providers right now trying to gauge appetite.

 

and the market has not as of this post reacted to this positive news (albeit unattributed), and still thinks the GSEs will be put into receivership

 

edit:  BAC's Moynihan has a direct line into Buffett.  this is how the OXY Buffett investment was made, a phone call from the BAC ceo.  so there is no way that Buffett doesn't get a first look.  not saying that he will bite...

[Guest cherzeca]

@IG

 

more to my point.

 

apparently GSEs are down big today because market believes that there is a material risk that the GSEs will go into receivership (based upon throw away lines from calabria and mnuchin to hostile questioning at HFSC hearing yesterday, and amplified by Bloomberg reporting).  I disagree with this assessment.  here imo is a perfect example of how current pricing by mr. market is something to take advantage of, rather than take instruction from.

 

I of course may be wrong, but I do believe that a commitment to a GSE investment requires an almost overweening skepticism of market pricing of GSEs

 

Even someone who has followed the GSEs for 6 months (certainty not the 6 plus year as I have) could see though the comments yesterday. FHFA is hiring a financial advisor to raise capital for gods sakes right now! Even a half ass attention span could see through and piece together Calabrias comments since he was confirmed.

 

Ill tell you what I see as a silver lining in this, the market believes this receivership threat. Congress maybe, the general public could give two shits but Calabria and Mnuchin did their job in front of hostile questioning that at some points got to the core of why this is going to happen in my belief (Paulson).  They continue to cast doubt on the process just enough to make this look like they looked at all options, protected the tax payer, and were left with no other option. Calabria can say now yeah I told you guys i was ok wiping shareholders out like I said at the hearing.....but I had no other option but to enrich them because that was the best path and I followed the law like I told you I would.

 

+1. 

[fanniequestions]

Hi All,

New member here and very long on FNMA...few questions on yesterday’s comment:

 

1. Other than bankruptcies, I have not found a single example of shareholders being wiped out, have any of yiu?

2. Theoretically, if a shareholder wipe out happens, are Senior preferred wiped out as well?  I’m under the impression that the gov doesn’t want to be wiped out and would want to profit from whatever the outcome of releasing their shares is.  On the other hand, if their senior preferred converts to common shares then aren’t they essentially stuck with same problem they have now of how to get them to private hands?  This puzzles me.

3. It appears that many of the hedge funds hold junior preferred FMAT.  There are conflicting opinions or favorable and unfavorable outcomes if FMAT is converted into common shares.  My question is that FNMA common stock dropped from $3.50 yesterday to $3.00 today and probably will have 30 million in volume today and FNMAT is essentially stagnant.  Panic and market manipulation in common stock while hedge funds don’t move a muscle on their junior preferred...thoughts?

4. FHFA stated Fannie has $6.4 billion in capital now...is this the same thing as the buffet.  That would be a 100% increase since the September 30 announcement that the buffer would be increased from $3 billion to $25 billion.  It kind of makes sense given the 5x demand on MBS products from banks such as JP Morgan struggling for profits in a low interest environment.  My question is if the capital and buffer meaning is the same...

 

Thank you all so much for your answers and comments!

[investorG]

Is there any rational / honorable reason why Calabria argues in court that the NWS via APA (Collins etc) was legal given his prior documented clear stance to the contrary?    certainly I understand why he fights the constitutional angle.

[Guest cherzeca]

@fannie?s

 

1/2.  receivership would likely wipe out common. maybe junior. re senior, treasury doesn't care since it has been repaid.  but receivership wont happen.  GSEs are hugely profitable.

3. juniors want a low common price if there is to be an exchange offer.

4. buffer is colloquial for capital

[Guest cherzeca]

@IG

 

if you want a recap process to survive any challenges by GSE antagonists, you have to play things by the book.  book says that if someone is suing you. you defend.

[orthopa]

Per HoldenWalker on twitter Calabria says we will know more regarding the capital rule in 2-3 weeks.

[Guest cherzeca]

last 10 years, S&P500 up 184%, FNMAS up 692%.  thought that was interesting.  very bumpy ride, mind you

[Guest cherzeca]

Per HoldenWalker on twitter Calabria says we will know more regarding the capital rule in 2-3 weeks.

 

this was from a tweet by Katy O'Donnell who is at least somewhat reliable.

 

it is strange, since if fhfa can make a determination that no reproposing is required, then it should have come to an at least close to final capital rule.  which means that fhfa should just issue the final rule.  I suppose there is some minor tweaking that it could want to do which it believes in no way would create such a different rule as to require reproposing, but why beat around the bush, and just put out the final rule when it is done.  all you are doing by announcing in two weeks that you are not reproposing is give some GSE hater time to lawyer up

[fanniequestions]

@fannie?s

 

1/2.  receivership would likely wipe out common. maybe junior. re senior, treasury doesn't care since it has been repaid.  but receivership wont happen.  GSEs are hugely profitable.

3. juniors want a low common price if there is to be an exchange offer.

4. buffer is colloquial for capital

 

cherzeca much appreciated...makes sense.  Another question...given that treasury doesn’t care about senior preferred IPO price since it has been repaid, I assume that similarly to AIG, the government came in at $30ish per share in 2008 and then released par value at $30ish per share.  Do we see a similar outcome here?  What price and date are we talking about September 6, 2008?

 

My charts show me $7 on Sept 1 and $0.75 on Sept 8...can’t see Sept 6.  Let’s say it IPOs lower than current value, do we see somebody (Buffet?) waiting on the sidelines to pick them all up?  Thanks again!

[Guest cherzeca]

@fannie?s

 

1/2.  receivership would likely wipe out common. maybe junior. re senior, treasury doesn't care since it has been repaid.  but receivership wont happen.  GSEs are hugely profitable.

3. juniors want a low common price if there is to be an exchange offer.

4. buffer is colloquial for capital

 

cherzeca much appreciated...makes sense.  Another question...given that treasury doesn’t care about senior preferred IPO price since it has been repaid, I assume that similarly to AIG, the government came in at $30ish per share in 2008 and then released par value at $30ish per share.  Do we see a similar outcome here?  What price and date are we talking about September 6, 2008?

 

My charts show me $7 on Sept 1 and $0.75 on Sept 8...can’t see Sept 6.  Let’s say it IPOs lower than current value, do we see somebody (Buffet?) waiting on the sidelines to pick them all up?  Thanks again!

 

if I understand your question, the only way there is a re-ipo is if the senior prefs are eliminated. 

[fanniequestions]

@fannie?s

 

1/2.  receivership would likely wipe out common. maybe junior. re senior, treasury doesn't care since it has been repaid.  but receivership wont happen.  GSEs are hugely profitable.

3. juniors want a low common price if there is to be an exchange offer.

4. buffer is colloquial for capital

 

cherzeca much appreciated...makes sense.  Another question...given that treasury doesn’t care about senior preferred IPO price since it has been repaid, I assume that similarly to AIG, the government came in at $30ish per share in 2008 and then released par value at $30ish per share.  Do we see a similar outcome here?  What price and date are we talking about September 6, 2008?

 

My charts show me $7 on Sept 1 and $0.75 on Sept 8...can’t see Sept 6.  Let’s say it IPOs lower than current value, do we see somebody (Buffet?) waiting on the sidelines to pick them all up?  Thanks again!

 

if I understand your question, the only way there is a re-ipo is if the senior prefs are eliminated.

 

I apologize if the wording  I am using is inaccurate...I am attempting to say “recap and release” but assumed that IPO of the senior preferred was one of the options at this juncture, and I understand the rules are still being finalized.

[Guest cherzeca]

@fannie?s

 

there will be no offering of senior preferred

[fanniequestions]

@fannie?s

 

there will be no offering of senior preferred

 

Thanks for that information...given 1) no receivership and 2) no elimination of senior preferable shares...do we know what will happen to the governments 80% interest right now or is that part of what is being drafted?

[allnatural]

Although the government giving up some or all of its equity would simplify a capital raise effort... i don't believe its in the cards. I think its conservative to assume the government will monetize its 80% warrants b/c no pending litigation that has legs is currently challenging the warrants, but only the NWS arrangement. And the government was able to realize its equity investments on the other TARP investments.

 

 

@fannie?s

 

there will be no offering of senior preferred

 

Thanks for that information...given 1) no receivership and 2) no elimination of senior preferable shares...do we know what will happen to the governments 80% interest right now or is that part of what is being drafted?

[orthopa]

Per HoldenWalker on twitter Calabria says we will know more regarding the capital rule in 2-3 weeks.

 

this was from a tweet by Katy O'Donnell who is at least somewhat reliable.

 

it is strange, since if fhfa can make a determination that no reproposing is required, then it should have come to an at least close to final capital rule.  which means that fhfa should just issue the final rule.  I suppose there is some minor tweaking that it could want to do which it believes in no way would create such a different rule as to require reproposing, but why beat around the bush, and just put out the final rule when it is done.  all you are doing by announcing in two weeks that you are not reproposing is give some GSE hater time to lawyer up

 

My one thought about reprposing the capital rule is that gives Calabria the ability to release the GSEs via consent decree without being held to any capital levels other then the statutory levels previously discussed. Then if the capital rule is published afterward that would take precsident as a goal to operate without a consent decree.  I could be way off on this and conflating an interaction between the two but just something I thought about.

 

Otherwise I agree. Just publish the damn thing. If he doesn't though I must be because publishing it too early would hinder the process in some fashion.

[allnatural]

In case anyone was still worried Calabria/Mnuchin wouldn't pursue admin actions absent Congress, Calabria spoke at an event today (

- starts @ 14:30 mark)  and offered some insight.

 

When asked if pursing admin action w/o congress is risky, he responded ... "nothing im doing isnt what congress already told me to do (implying via HERA, as Congress already told him what to do) ... endless limbo is not in the statute ... i'm not gonna wait around to do, what congress has already told me to do"

[fanniequestions]

Although the government giving up some or all of its equity would simplify a capital raise effort... i don't believe its in the cards. I think its conservative to assume the government will monetize its 80% warrants b/c no pending litigation that has legs is currently challenging the warrants, but only the NWS arrangement. And the government was able to realize its equity investments on the other TARP investments.

 

 

@fannie?s

 

there will be no offering of senior preferred

 

Thanks for that information...given 1) no receivership and 2) no elimination of senior preferable shares...do we know what will happen to the governments 80% interest right now or is that part of what is being drafted?

 

Thanks allnatural...trying to make sense of this since you have a deeper understanding of the arrangements and past TARP comparisons.

 

Can you clarify what it means and how the government will monetize its 80% warrants? And what it means to common and preferred if you know that answer as well? Thanks!