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

[Guest cherzeca]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both

 

 

then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money

[COBFInfinity]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both

 

 

then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money

 

I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par.

[Guest cherzeca]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both

 

 

then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money

 

I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par.

 

no my answer is directed to what are they "worth", not what they will be priced at by market

[Wiggins]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both

 

 

then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money

 

I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par.

 

no my answer is directed to what are they "worth", not what they will be priced at by market

 

Yes I am wondering about both... immediate valuation drop and subsequent eventual value, with the latter being far more important of course. Thanks for the thoughts. In my humble opinion I'm staying in for the long term for the reasons and opinions already stated. I do worry the Fannie Gate crowd is setting up for failure by expecting action by Jan 20th, thus when it doesn't happen there will be a huge selloff, but whatevs...

 

Good luck and Merry Christmas (and Chanukah and Kwanzaa)

[TwoCitiesCapital]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both

 

 

then I would think about 80% of par (+-), less a 1-2 year discount at your preferred time value of money

 

I thought the question is what are they worth on January 21 with SCOTUS still up in the air and no administrative action. I would guess about 25% of par.

 

no my answer is directed to what are they "worth", not what they will be priced at by market

 

Yes I am wondering about both... immediate valuation drop and subsequent eventual value, with the latter being far more important of course. Thanks for the thoughts. In my humble opinion I'm staying in for the long term for the reasons and opinions already stated. I do worry the Fannie Gate crowd is setting up for failure by expecting action by Jan 20th, thus when it doesn't happen there will be a huge selloff, but whatevs...

 

Good luck and Merry Christmas (and Chanukah and Kwanzaa)

 

I feel like we shook out a lot of those week hands with the hit pieces saying Mnuchin wasn't gonna do anything before leaving office and the subsequent 20-30% drop.

 

Maybe I'm wrong though

[Guest cherzeca]

I have always viewed the JP investment as buttressed by a legal outcome...which I agree with wiggins will be favorable (indeed, more favorable than wiggins but that is besides the point). so I have viewed this administration fubar process as upside, timing-wise.  if you believe as I do that the 5thC en banc APA claim will be affirmed, then there will be an invalidation of the NWS...the testimony and documentary evidence from Fairholme discovery that collins Ps can use will permit no other alternative.  but I would rather see Mnuchin grow some hair on his balls sooner rather than wait for the grinding wheels of justice.

[undervalued]

Since you're talking about long term, what can Yellen do when she is in power to stop whatever Calabria is planning now?

[WB_fan82]

Cherzeca,

 

I challenged you before on the constitutional claim about the acting director issue and the SC zoomed right into that with nearly the entire extended time.

 

I'll give the same challenge, but on the APA front this time.  HERA explicitly permits the FHFA to act in the FHFA's interests.  None of the old FDIC / bank statutes allowed the FDIC to do that.  And that is precisely why the courts are likely to find that the FHFA's NWS actions were valid.  It deemed that to be in its own interest.  It didn't have to put its interest aside in some form of optimizing the conservation of assets.  So case closed.  There is no reasonableness standard.  It's a crappy outcome, but it's what the law says.  Nothing illegal about being a majorly suboptimal conservation of interests when the law provides that flexibility to the agency.

 

Would love your pushback on that.  I'm not a lawyer, but I've read a lot of legal filings and sometimes I think I've gotten the hand of it, lol.

[Guest cherzeca]

"None of the old FDIC / bank statutes allowed the FDIC to do that."

 

not true. same language, referring to the best interests of the conservatee or agency

 

read vartanian's amicus brief

 

as for acting director, still an acting director of an "independent" agency.  independent is a term of art, meaning not subject to potus control

[Wiggins]

Cherzeca,

 

I challenged you before on the constitutional claim about the acting director issue and the SC zoomed right into that with nearly the entire extended time.

 

I'll give the same challenge, but on the APA front this time.  HERA explicitly permits the FHFA to act in the FHFA's interests.  None of the old FDIC / bank statutes allowed the FDIC to do that.  And that is precisely why the courts are likely to find that the FHFA's NWS actions were valid.  It deemed that to be in its own interest.  It didn't have to put its interest aside in some form of optimizing the conservation of assets.  So case closed.  There is no reasonableness standard.  It's a crappy outcome, but it's what the law says.  Nothing illegal about being a majorly suboptimal conservation of interests when the law provides that flexibility to the agency.

 

Would love your pushback on that.  I'm not a lawyer, but I've read a lot of legal filings and sometimes I think I've gotten the hand of it, lol.

 

I'm not a lawyer but I'm going to take a stab at this.

the exact text is:

 

"

(J) INCIDENTAL POWERS.—The Agency may, as conservator or receiver—

‘‘(i) exercise all powers and authorities specifically

granted to conservators or receivers, respectively,

under this section, and such incidental powers as shall

be necessary to carry out such powers; and

‘‘(ii) take any action authorized by this section,

which the Agency determines is in the best interests

of the regulated entity or the Agency.

"

 

Note that it can only take an action in the agency's "best interests" that is "authorized by this section" [emphasis added].  The NWS is not authorized for ANY conservator, thus it is not authorized by this section and cannot be done despite the fact that it's in the interest of the Agency (FHFA). So, no dice. Great challenge though and for all I know the judges will see it the wrong way (I don't think so)

[Guest cherzeca]

wigs

 

if you take the time to post that, you should read the briefing:  https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-422.html

 

you won't have to guess at what the arguments are

[typicalvalue]

23 days to be disappointed. Just leaving it here. Another week in front of us.

[Wiggins]

wigs

 

if you take the time to post that, you should read the briefing:  https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-422.html

 

you won't have to guess at what the arguments are

 

my argument is my opinion but it's not just that.. it's an argument made by David Thompson in a previous oral argument, I think in the original DC circuit case. This argument has been made probably since then.

 

If you're referencing something specific in the current brief, amicus (which one), or replies, etc, then why not reference it directly rather than the snipe, which isn't helpful?

[Sunrider]

wigs

 

if you take the time to post that, you should read the briefing:  https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-422.html

 

you won't have to guess at what the arguments are

 

my argument is my opinion but it's not just that.. it's an argument made by David Thompson in a previous oral argument, I think in the original DC circuit case. This argument has been made probably since then.

 

If you're referencing something specific in the current brief, amicus (which one), or replies, etc, then why not reference it directly rather than the snipe, which isn't helpful?

 

I don’t think he was sniping ... just pointing to the full legal argument.

[Guest cherzeca]

right.  my only point was that if you have the interest and energy to analyze the legal situation, the first place to start is with the actual briefing before scotus.

[Wiggins]

right.  my only point was that if you have the interest and energy to analyze the legal situation, the first place to start is with the actual briefing before scotus.

 

Chris what are you referring to, exactly? Vartanian?

 

[Guest cherzeca]

right.  my only point was that if you have the interest and energy to analyze the legal situation, the first place to start is with the actual briefing before scotus.

 

Chris what are you referring to, exactly? Vartanian?

 

all of the briefing. my reference to vartaninan was just to point out how HERA was identical to predecessor statutes

[WB_fan82]

HERA gave the power to FHFA to act in its own interests as conservator.

 

The FDIC was not empowered to act in its own interests.

 

That seems like a pretty fundamental difference.

[Guest cherzeca]

HERA gave the power to FHFA to act in its own interests as conservator.

 

The FDIC was not empowered to act in its own interests.

 

That seems like a pretty fundamental difference.

 

wrong

[COBFInfinity]

HERA gave the power to FHFA to act in its own interests as conservator.

 

The FDIC was not empowered to act in its own interests.

 

That seems like a pretty fundamental difference.

 

Even without knowing anything about the GSE conservatorship, you should know this is obviously false. FDIC absolutely has to act in its own interest because it is on the hook to cover insured deposits of an insolvent bank. So the FDIC has discretion to take actions that will minimize the potential for it to lose money, even if it may be less favorable for the bank's creditors.

 

I'm curious what act(s) you think the FHFA did that was "in its own interests" anyway. Quite the opposite of the FDIC, FHFA had no money at risk in the GSE's - it was Treasury that had all of the economic exposure. Is FHFA empowered to act in the interests of Treasury as opposed to its statutory purpose of conserving assets of the GSE's? Hmm...I think there are some lawsuits about that.

[Guest cherzeca]

HERA gave the power to FHFA to act in its own interests as conservator.

 

The FDIC was not empowered to act in its own interests.

 

That seems like a pretty fundamental difference.

 

Even without knowing anything about the GSE conservatorship, you should know this is obviously false. FDIC absolutely has to act in its own interest because it is on the hook to cover insured deposits of an insolvent bank. So the FDIC has discretion to take actions that will minimize the potential for it to lose money, even if it may be less favorable for the bank's creditors.

 

I'm curious what act(s) you think the FHFA did that was "in its own interests" anyway. Quite the opposite of the FDIC, FHFA had no money at risk in the GSE's - it was Treasury that had all of the economic exposure. Is FHFA empowered to act in the interests of Treasury as opposed to its statutory purpose of conserving assets of the GSE's? Hmm...I think there are some lawsuits about that.

 

this is right, since FDIC always was extending money in bank rehabs. HERA used the predecessor statutory reference to "agency" (copy and paste) not realizing I guess that Treasury would be out the money, not FHFA, and Treasury is not an agency. so if anything, HERA was less favorable to govt than FDIC as per copy and paste from prior statutes.  net net, the whole FHFA conservatorship was a shit show once it did the NWS...not the rule of law but the rule of know nothing policy wonks like Parrott who didnt know ass from elbow.

[Wiggins]

right.  my only point was that if you have the interest and energy to analyze the legal situation, the first place to start is with the actual briefing before scotus.

 

Chris what are you referring to, exactly? Vartanian?

 

all of the briefing. my reference to vartaninan was just to point out how HERA was identical to predecessor statutes

 

I did read all the briefing as it came out and listened to the oral argument.

So you shouldn't assume that I didn't read it and that my opinion was a "guess".

In so doing, you missed my point which was distinct from your own.

The point I made was most eloquently stated by Willett in his dissent, and I think it's a valid, completely separate point from yours (and Vartanian's) and a good counter to the issue WB brought up.

 

[COBFInfinity]

...

8.  To reiterate, YOU DO NOT NEED SR PFD TO GO POOF to accomplish Mnuchin's or Calabria's objectives

9.  Therefore the senior preferred will stay in place.  It will be non cumulative.  The dividend rate will change from NWS to X%.  This is how mnuchin "protects taxpayer".

10.  When the sr pfd is non-cumulative it will also count as capital

...

 

WB_fans82, I've disagreed with you on a few points, but I am coming around to your comments a few weeks back, that Mnuchin will not write down the Sr Pfd. If he wanted to do that, he would have settled the lawsuits. To do it outside of settlement shows no benefit to Tsy investment and opens him up to criticism, maybe even legal challenges (though he would be gone by then). I also don't think Sr Pfd gets converted to equity, because then Tsy owns more than 80% of common and then all the GSE debt goes on U.S. Gov balance sheet and I don't think Mnuchin wants that to be his legacy. So I think your idea of just officially ending the NWS and changing Sr Pfd to non-cumulative is a clean route to take. The question is how do they make sure it gets paid off at some point? Seems like the two options are a high dividend rate that would be desirable to replace with fresh capital or have it convertible into common (assuming that doesn't trigger the 80% ownership if it is at an out-of-the-money strike price). In order to count as capital, it has to be perpetual, so there can't be a mandatory conversion or specified paydown periods.

 

The problem in my mind with this type of solution has always been that it doesn't make the lawsuits "go away", as Calabria once implied. But thinking through my balance sheet analysis (if I can call it that) crystallized that, as long as the NWS is ended, it isn't THAT big of a deal whether the Sr Pfd is written down, because most of that writedown will accrue to the Tsy warrant value anyway. So while we certainly would like to recapture the excessive payments Tsy received, it's not a deal killer if we don't. It will take longer, but it can still get done. So obviously we all wait for SCOTUS opinion, but if shareholders lose, I think it is possible that plaintiffs throw in the towel on litigation so that the recap can begin. Even if shareholders win, they will want a settlement a lot more than Tsy, so in the interest of time value and getting the recap moving, they would probably accept a fraction of what they hoped for.

 

So I am feeling a little more bullish despite my concerns about Mnuchin. I think the PSPA amendment might have a lot fewer moving parts than many people have imagined, but it can work. The one thing I don't see mentioned much is that the warrants either need to be exercised or amended to remove the dilution clause that Tsy retains 79.9% of common even after a capital raise, which is such an obvious recap killer that I think we just take for granted that it will be changed. But does Tsy expect compensation for that?

 

Assuming this is kind of what happens with Mnuchin's "framework", the final big question for Jr pfds is: when will common stock pay a dividend? If they decide that's the way to go to attract more capital on the first common raise, then Jr Pfds (possibly barring those with minuscule yields) likely get exchanged into common somewhat before that. Based on current timelines, that's probably less than a year out (pretty easy way to get rid of the lawsuits, too). If common stock will not pay a dividend for a while, then Jr Pfd have years to go before reaching par.

[Guest cherzeca]

there would seem to be some dynamic interactions going on behind the scenes. SM has right to consent to release from C under SPSA if there are SP outstanding. MC wants to do some kind of consent decree exit out of C before he gets canned. so if SM writes down SP, he gives MC free rein. why should SM care what MC does?  beats me. I personally think SM is getting around to doing what he wants to do when he wants to do it...it is a form of power.  if I had to bet, I would bet this gets done at last moment, because SM is feeling his oats on the way out

[COBFInfinity]

P.S. on the warrants. While they have value unexercised, no one knows exactly what it is. If Mnuchin exercises them, they will have transparent value and future Treasury will look bad if they act in a manner to cause the investment to drop in price.