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

[investorG]

rule of law guy's latest:  https://seekingalpha.com/article/4324008-for-fannie-and-freddie-shareholders-road-to-litigation-settlement-runs-through-seila

 

Thank you.

 

Is the SC more conservative than the 5th circuit en banc (7-9 outcome)?

 

For a non-lawyer, the retrospective relief sounds somewhat arbitrary on what it applies to and could make for messier legal outcomes regarding other random decisions the cfpb / fhfa have made in recent years?

 

retrospective relief is precisely not arbitrary...you give P the relief it is seeking.  this is the traditional understanding of judicial power, to hear actual cases and controversies and apply the law to redress the P's injury, not to clean up some statute.  forget about liberal v conservative, not  a useful construct in this context, rather think in terms of scotus moving back to a more traditional scope of its power.  this has been a big thing with Thomas and he has patiently urged the court to focus on limiting its own conception of judicial power which is very much in tune with the current makeup of court

 

If they grant backward looking relief then what's to stop a flood of lawsuits from people who have felt wronged by the FHFA or CFPB for any other matter over the past few years?

 

The answer is in ROLG's article.

 

justice kagan authored recent Lucia opinion where she stated that litigants should be granted incentives to bring constitutional challenges to agency action by an agency suffering a constitutional defect...not to open up past instances of agency action where party did not raise constitutional objection at the time...no after the fact piggybacking.  seila may be 6-3 in favor of P

 

thanks.  that seems relevant and modestly hopeful on Kagan / Lucia.  because re-reading the section in Collins where the 5th circuit nine judges declined to provide backward relief, it made decent sense in a non-lawyer way - why just cherry pick on the 3rd amendment instead of others (which may have helped FnF) as invalid.  if is it simply because they filed soon enough and all the others didn't without a firm/official rule on when something loses eligibility, that seems somewhat random in such important circumstances.  thank you again.

[Midas79]

Perhaps these are better questions for Tim Howard; he might have a better idea as to how much of this comes from Calabria as opposed to Layton just spitballing.

 

https://twitter.com/midas79_/status/1229833530789646336

"The two GSEs, assuming they come out of conservatorship ... will be subject to rigorous capital requirements (akin to what the largest banks have)."

Is this a prediction, a desire, or (formerly) inside info from Layton's dealings with Calabria?

[Guest cherzeca]

@IG

 

as I recall the real crux of the 7-9 collins denial of relief is the 2 judge concurrence written by Duncan, where it is expressed that under Free Enterprise retrospective relief is not authorized...and this is what I expect Seila to correct.  as to the other 7 judges, it is not up to them to criticize what agency action P decided to contest.  if agency unconstitutional at time of such action, P gets relief...this is what I expect the Seila message will be.

 

you may want to go back to ROLG's SA article and click on hyperlink to the Collins Amicus brief in Seila, which explains this well

[Guest cherzeca]

Perhaps these are better questions for Tim Howard; he might have a better idea as to how much of this comes from Calabria as opposed to Layton just spitballing.

 

https://twitter.com/midas79_/status/1229833530789646336

"The two GSEs, assuming they come out of conservatorship ... will be subject to rigorous capital requirements (akin to what the largest banks have)."

Is this a prediction, a desire, or (formerly) inside info from Layton's dealings with Calabria?

 

I guess depends upon what "akin" means.  I just think we all have to wait for the proposed capital rule, now expect by end of march.  certainly will be more than statutory minimum

[Luke 532]

https://www.bloomberg.com/amp/news/articles/2020-02-20/fannie-freddie-may-be-freed-with-treasury-backstop-mnuchin-says?__twitter_impression=true

Fannie-Freddie May Be Freed With Treasury Backstop, Mnuchin Says

[Mephistopheles]

https://www.bloomberg.com/amp/news/articles/2020-02-20/fannie-freddie-may-be-freed-with-treasury-backstop-mnuchin-says?__twitter_impression=true

Fannie-Freddie May Be Freed With Treasury Backstop, Mnuchin Says

 

Still no timeline or details on what to do with shareholders. Sigh

 

I really hope someone like Bloomberg, who wants to nationalize, wins the nomination just to force their hand. I don't think mnuchin is stupid enough to wait until next Presidential term to take irrevocable action

[james22]

Unless the courts force their hand, I don't expect the administration to act before November. Why would they?

 

If Trump wins and Republicans gain control of Congress, they'll be able to direct congressional action.

 

If Trump loses, they'll act administratively.

 

[investorG]

Unless the courts force their hand, I don't expect the administration to act before November. Why would they?

 

If Trump wins and Republicans gain control of Congress, they'll be able to direct congressional action.

 

If Trump loses, they'll act administratively.

 

90% of me agrees, don't expect anything pre-election (at a minimum).  the capital build amounts chosen in the letter agreements (relative to earnings paths) + repeated delays by calabria tell this story well.

 

10% holds out hope that the team is stronger than they appear and do the honorable thing: some deal this summer whereby the warrants are monetized up front in conjunction with a 4th amendment.  the only support I have for this is the 'coming months' quote from calabria in the sep30 letter agreement. 

[orthopa]

The fatigue is getting real. Going on 7-8 years for some on the board. Sigh. Anyone able to find a copy of letter to the Senators??

[Mephistopheles]

Unless the courts force their hand, I don't expect the administration to act before November. Why would they?

 

If Trump wins and Republicans gain control of Congress, they'll be able to direct congressional action.

 

If Trump loses, they'll act administratively.

 

90% of me agrees, don't expect anything pre-election (at a minimum).  the capital build amounts chosen in the letter agreements (relative to earnings paths) + repeated delays by calabria tell this story well.

 

10% holds out hope that the team is stronger than they appear and do the honorable thing: some deal this summer whereby the warrants are monetized up front in conjunction with a 4th amendment.  the only support I have for this is the 'coming months' quote from calabria in the sep30 letter agreement. 

 

The headline during election months when they monetize the warrants and take in $100 billion in gains would look pretty sweet for Trump.

[Guest cherzeca]

Calabria re consent decree from reply letter to senators:  "A consent order is entered into

voluntarily between a regulated entity and its regulator and can be enforced by the

regulator through common enforcement actions, similar to the way a court maintains

jurisdiction during the settlement of a court action in order to ensure compliance. For

instance, under a consent order, FHF A would have the authority to permit an Enterprise

that has reached a certain capital level below the required minimum to operate outside of

conservatorship subject to a capital restoration plan (see 12 U.S.C. §§ 4615 , 4616, 4617,

4622)."

 

 

[Guest cherzeca]

Unless the courts force their hand, I don't expect the administration to act before November. Why would they?

 

If Trump wins and Republicans gain control of Congress, they'll be able to direct congressional action.

 

If Trump loses, they'll act administratively.

 

I can see trump getting reelected. I dont see Rs getting to 60 in the senate. 

[orthopa]

Found a copy of letter.

UST_FHFA_letter.pdf

[Luke 532]

Found a copy of letter.

 

Thanks for posting!

[orthopa]

Mnuchin and Calabria basically said read our Treasury plan and we have no idea what we are going to do. Its been ~5 months since the last PSPA agreement and they are still "considering" changes.

 

All in all what a joke. Unless forced by courts these 2 seem not willing to act before the election. If Trump wins and nothing meaningful has been put in place I will highly consider reducing my position as that opens up another 4 year window of I dont knows, working with congress, and court appeals. Fuck that. At this point a lot of time and money has been spent/invested in this. From an investment standpoint urgency is the key that determines outcome and we can see there is none.

 

November and all that transpires before then cannot come soon enough.

[allnatural]

Only silver lining is if we get the ruling we desire in Seila, shareholders get the remedy we want and it wouldn't be subject to any more appeals as its coming from SCOTUS. So pending further administrative action, the Seila ruling could be the "moment" we have been waiting for.

[Luke 532]

How much detail of their intentions were you guys expecting them to give Congress? I didn't even bother to make a note of "response to Mark Warner & Co." in my list of upcoming events.

[Guest cherzeca]

this letter response was crafted for the D congressional recipients. many references to working with congress preference (knowing full well that is going nowhere) and saying we dont know what the future holds (and leaving out that there is a roadmap which they are pursuing...albeit slowly and with delays).  I would agree that if we get the seila holding we want in July, the handwriting will be on the wall...NWS is toast.  now, it would take awhile to process that through the 5th C and with the district court, but I really believe that will be sufficient political cover for M&C to proceed.

[orthopa]

How much detail of their intentions were you guys expecting them to give Congress? I didn't even bother to make a note of "response to Mark Warner & Co." in my list of upcoming events.

 

I certainly didn't expect this to be the moment we have been waiting for. Just very tiring with the constant delays an extended timeline. I really do hope that legally their hand is forced or meaningful action takes place before election as a safe guard. If not we could again hear in Trumps victory parade that reforming FnF is a priority. Just like Mnuchin said going on 4 years ago. If their hand is not forced in some fashion it very well could take year(s) from now to get anywhere near par. FHFA took an extra 3 months just to hire a financial adviser. 3 months more for capital rule, then FnF advisor, then PSPA agreement, then consent decree etc, court appeals, etc etc.  There are many steps to come before we may see anywhere near par, a conversion or public offering.

 

Without a court ruling forcing their hand (hasn't happened yet in what 6 years?) and trump re elected we could be looking at years before this is all said and done. Maybe Im reaching full pessimism but there has been little to nothing suggesting that wont happen, and everything that has happened suggested it will.

 

I can also say now i misjudged for the worst Mnuchin and Calabria and actually believed what they said publicly in any relation to time line/expectation. You can throw in Otting too. Looking back that was big a moment and a turn for the worse in regards to timing, probably much more then we realized then and now. Shame on me and shame on all of us, as most wouldn't be in the trade if we didn't at least partially believe what they said.  If they continue to delay as they have, continue to vigorously defend lawsuits (how much more cover do you need?), and continue to lower expectations one has to think that Trump losing the election probably would allow the best/fastest outcome for shareholders.

[Jcmeg35]

I can understand the frustration given the public comments from the admin you site. Having said that, there has defiantly been tangible progress over the last year to start moving the ball forward, both on the legal and admin front.

 

While no doubt slower than we would all like, there for sure has been progress: published plan, more capital retention, hired FA, and new capital rule (hopefully by end of next month. All to say, tangible steps, and no longer just “talk”.

[Guest cherzeca]

How much detail of their intentions were you guys expecting them to give Congress? I didn't even bother to make a note of "response to Mark Warner & Co." in my list of upcoming events.

 

I certainly didn't expect this to be the moment we have been waiting for. Just very tiring with the constant delays an extended timeline. I really do hope that legally their hand is forced or meaningful action takes place before election as a safe guard. If not we could again hear in Trumps victory parade that reforming FnF is a priority. Just like Mnuchin said going on 4 years ago. If their hand is not forced in some fashion it very well could take year(s) from now to get anywhere near par. FHFA took an extra 3 months just to hire a financial adviser. 3 months more for capital rule, then FnF advisor, then PSPA agreement, then consent decree etc, court appeals, etc etc.  There are many steps to come before we may see anywhere near par, a conversion or public offering.

 

Without a court ruling forcing their hand (hasn't happened yet in what 6 years?) and trump re elected we could be looking at years before this is all said and done. Maybe Im reaching full pessimism but there has been little to nothing suggesting that wont happen, and everything that has happened suggested it will.

 

I can also say now i misjudged for the worst Mnuchin and Calabria and actually believed what they said publicly in any relation to time line/expectation. You can throw in Otting too. Looking back that was big a moment and a turn for the worse in regards to timing, probably much more then we realized then and now. Shame on me and shame on all of us, as most wouldn't be in the trade if we didn't at least partially believe what they said.  If they continue to delay as they have, continue to vigorously defend lawsuits (how much more cover do you need?), and continue to lower expectations one has to think that Trump losing the election probably would allow the best/fastest outcome for shareholders.

 

I as well did not appreciate how much more slowly this would progress in the politicized world of federal finance, as compared to a 6 month time schedule appropriate to a normal private recap.  at this point, I see either a light at the end of the tunnel or....

[Luke 532]

Freddie Mac adds Mark Grier to its Board of Directors

https://www.housingwire.com/articles/freddie-mac-adds-mark-grier-to-its-board-of-directors/

In late 2011, Grier led the $3 billion initial public offering of Prudential Financial, which was one of the largest IPOs in history at the time.

[james22]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

[Guest cherzeca]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

I dont want to politicize this thread, but just like there is a "deep state" of left of center bureaucrats that push back against many of Trump's initiatives, there is also a "deep state" of bureaucrats who are GSE-haters (or at least pro-banks).  I truly believe that calabria and mnuchin are moving shoulder to shoulder to implement a recap and release, but there is always going to be those who have to be consulted in treasury and NEC that will slow things down (I have no doubt that any bank lobbyist can get Kudlow to pick up the phone)...plus there is the drag posed by a congress that whether pro or anti GSE, simply wants its power prerogatives respected.

 

this is something that I didn't realize and should have not discounted.  having said that, I dont see the GSEs as posing a political risk regarding re-election.  sure there is plenty of anti-billionaires speak going on but that is very generalized level class warfare jabbering, and not really specific to particular policies such as GSE recap that can move voters in a way that voters aren't already inclined to vote, given their class identities and sympathies. 

[orthopa]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

Tax reform could just have easily been used against them and will as the debates heat up. Closer we get to election sure GSE reform could be used but honestly is the average voter going to give a shit? More $$$ has been given to evil corporations and billionaires via tax cuts then any amount the GSEs will. Whats becoming obvious is that the admin/mnuchin/calabria are not going to be nearly as aggressive as signaled earlier. You can blame it on any other priority the administration had but going back to the Treasury plan being delayed by 4 months there has been a consistent and deliberate delay every step of the way. I think at this point its foolish to think that unless forced in some fashion they act quickly at any point. No way. Trump getting elected opens up 4 more years and at this rate it will take a good chunk of that. The question is how long do you want to wait? Want to wait 2-3 more years for 75%-80% of par? At some point it makes sense to take look, be realistic and reassess the situation.

 

What does all of this mean in my opinion? There is a lobby or external source that has been powerful enough to significantly influence the plan, every step of the way. Thats no bueno at this point. Absent a court ruling that forces their hand this could take 4 more years. Do we get made whole? I guess but it eats into returns and their is the opportunity cost of holding.

 

Again I maybe reaching maximum pessimism but there is every reason to expect the longest, most drawn out version of this recap you can imagine. For some that may mean waiting 10,11,12 years.