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

[Luke 532]

As much as I agree with you on the prospects of the Delaware case, I'd be a little hesitant to use the highlighted reasoning. Never ask your barber whether you need a haircut. :)

 

:)

[Mephistopheles]

The Jumpstart GSE Act that's part of the omnibus spending agreement recently agreed between Democrats and Republicans in congress looks like the nail in the coffin that will keep the corpse of  F&F from rising from the dead to benefit private shareholders.

 

The key provision prohibits the administration from selling its preferred shares before 2018. Selling or exchanging the preferred shares would be a necessary part of a recapitalization that could benefit other shareholders.

 

But, that's not the worst of it.

 

The fact that congress now in the Jumpstart GSE Act specifically refers to the Government's 2012 amendment to the preferred stock agreements that swept all the profits of F&F to the US Treasury without the new act's reversing the sweep, is a huge negative for other shareholders.  That's because that new law about to be passed by congress is now interpreted to passively acquiesce to the sweep of the profits into the US Treasury.  That's a huge strike against the one remaining lawsuit by F&F shareholders still remaining before a court.

 

I hate to say it after my initial enthusiasm as the original poster that stimulated all the interest in F&F preferred, but chance of substantial recovery now seems to be a long shot, a very long shot, at least until 2018.

 

Maybe I'm missing something, but I don't see how this changes the odds. Sweeney can still rule this as a takings without violating this new law - Treasury would simply keep their senior pref position at $187 billion. A 3rd amendment reversal would mean a return of the funds taken, instead of being used to pay down the preferred (so it wouldn't be a liquidation).

 

With regards to your other point. I have believed from the beginning that Congress is never going to act to recap, release from conservatorship, or kill the GSE's. Why change the status quo when it is giving you a free piggy bank? I'd be surprised if they didn't acquiesce. Why should they mind? It's free money.

[muscleman]

The Jumpstart GSE Act that's part of the omnibus spending agreement recently agreed between Democrats and Republicans in congress looks like the nail in the coffin that will keep the corpse of  F&F from rising from the dead to benefit private shareholders.

 

The key provision prohibits the administration from selling its preferred shares before 2018. Selling or exchanging the preferred shares would be a necessary part of a recapitalization that could benefit other shareholders.

 

But, that's not the worst of it.

 

The fact that congress now in the Jumpstart GSE Act specifically refers to the Government's 2012 amendment to the preferred stock agreements that swept all the profits of F&F to the US Treasury without the new act's reversing the sweep, is a huge negative for other shareholders.  That's because that new law about to be passed by congress is now interpreted to passively acquiesce to the sweep of the profits into the US Treasury.  That's a huge strike against the one remaining lawsuit by F&F shareholders still remaining before a court.

 

I hate to say it after my initial enthusiasm as the original poster that stimulated all the interest in F&F preferred, but chance of substantial recovery now seems to be a long shot, a very long shot, at least until 2018.

 

Maybe I'm missing something, but I don't see how this changes the odds. Sweeney can still rule this as a takings without violating this new law - Treasury would simply keep their senior pref position at $187 billion. A 3rd amendment reversal would mean a return of the funds taken, instead of being used to pay down the preferred (so it wouldn't be a liquidation).

 

With regards to your other point. I have believed from the beginning that Congress is never going to act to recap, release from conservatorship, or kill the GSE's. Why change the status quo when it is giving you a free piggy bank? I'd be surprised if they didn't acquiesce. Why should they mind? It's free money.

 

Could there be another lawsuit that rules the jump start GSE bill as illegal? If not, what happens if congress keeps the current GSE status quo forever?

[Luke 532]

Interesting after-hours trades today:

 

FNMA: 19.55M shares

FMCC: 17.12M shares

[doughishere]

Could there be another lawsuit that rules the jump start GSE bill as illegal? If not, what happens if congress keeps the current GSE status quo forever?

 

Bills of the Week for December 14, 2015

http://docs.house.gov/floor/Default.aspx?data-ipsquote-timestamp=2015-12-14

 

Click on the link for "House amendment #1 to the Senate amendment to H.R. 2029 (Rules Committee Print 114-39, showing the text of the Consolidated Appropriations Act, 2016)"

 

TITLE VII—FINANCIAL SERVICES

Sec.  702.  Limitations on sale of preferred stock.

Page 1968 of the document.

 

(b) LIMITATIONS ON SALE OF PREFERRED STOCK.— Not with standing any other provision of law or any provision of the Senior Preferred Stock Purchase Agreement, until at least January 1, 2018, the Secretary(MyEdit: Secretary of the Treasury, Sec.702(a)(1)) may not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred stock acquired pursuant to the Senior Preferred Stock Purchase Agreement, unless Congress has passed and the President has signed into law legislation that includes a specific instruction to the Secretary regarding the sale, transfer, relinquishment, liquidation, divestiture, or other disposition of the senior preferred stock so acquired. © SENSE  OF CONGRESS.—It is the Sense of Congress that Congress should pass and the President should sign into law legislation determining the future of Fannie Mae and Freddie Mac, and that notwithstanding the expiration of subsection (b), the Secretary should not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred stock acquired pursuant to the Senior Preferred Stock Purchase Agreement until such legislation is enacted.

 

 

Essentially all it does is guarantee that the Treasury has to keep(Treasury secretary can not sell, transfer, relinquish, liquidate, divest or otherwise dispose of the the senior preferred stock) the senior stock until 1) Congress and the President agree to sell the senior preferred(when have they ever agreed on anything?) and 2) or January 1, 2018 comes along and then they decide to do something at that later time....

 

 

 

It says nothing about the lawsuits or the legality of the 3rd amendment, or the Delaware case or anything else with the other current cases.

 

Am I wrong?

[twacowfca]

The US Court of Claims should wind up with jurisdiction, notwithstanding mosquito bites in other courts.  In the unlikely event that plaintiffs get a favorable ruling, it is very likely that the ruling will be that the sweep is legal, but the plaintiffs have a claim.

 

That claim would be based on what would have occurred had the sweep not happened.  10% annual compounded interest on a growing principal amount is beyond the normalized dividend capacity of F&F in various future interest rate scenarios.  And, F&F would not be able to pay dividends to other  preferred shareholders until their capital built up to levels much higher than before the crisis. Plus, no more goosing their results with mark to myth accounting.

 

In the meantime the the ten percent dividend arrears the U.S. is due keeps on compounding and likely adding to the principal amount owed the U.S. in the years ahead that may not be highly profitable.

 

That compounding freight train will keep pulling ahead of the normalized earnings of the dynamic DUO of F&F. 

 

 

 

 

[merkhet]

Why would the ten percent compound?

[Luke 532]

The US Court of Claims should wind up with jurisdiction, notwithstanding mosquito bites in other courts.

 

A major pillar of my entire thesis rests on the 2012 NWS being deemed illegal.  Delaware alone should take care of the NWS.  Without knowing your reasoning, it seems a bit odd to me to believe a loss in Delaware would amount to nothing more than a mosquito bite to the government.  I'm curious of your reasons to believe that Delaware, Perry Appeal, Saxton, Robinson, etc. all amount to nothing more than minor annoyances to the government's case?  Thanks in advance for your input.

[doughishere]

Congressional Record December 18, 2015 114th Congress, 1st Session Issue: Vol. 161, No. 185 — Daily Edition

 

https://www.congress.gov/congressional-record/2015/12/18/senate-section

 

 

                      Section 702 in Division O

 

  Mr. BROWN. Madam President, today I wish to discuss section 702 in

division O of the Omnibus appropriations bill. It is a provision that

would prohibit the Treasury Department

 

[[Page S8857]]

 

from selling, transferring or otherwise disposing of the senior

preferred shares of Fannie Mae and Freddie Mac for 2 years.

  In 2008, Treasury Secretary Hank Paulson and Federal Housing Finance

Agency Director James Lockhart placed Fannie Mae and Freddie Mac into

conservatorship and created an agreement that gave the Treasury

Department senior preferred shares in both entities. Since that time,

the GSEs helped stabilize the housing market by ensuring that families

had access to 30-year fixed-rate mortgages at reasonable rates and

lenders had access to a functioning secondary market. While the

government was initially forced to inject $188 billion into shoring up

these two agencies, it has since collected $241 billion. Taxpayers have

thus earned $53 billion during the conservatorship.

  Mr. SCHUMER. Madam President, will the Senator yield for a question?

I am concerned that someone could read the provision as limiting a

future administration's authority to end the conservatorship after the

2-year prohibition absent congressional action. Does the provision

prohibit a future administration from taking any action after January

1, 2018, if it is in the best interest of the housing market, taxpayers

or the broader economy?

  Mr. BROWN. I will say to my colleague from New York that it does not.

That is not the effect of the language. Any number of decisions could

be made after that date, when a new Congress and a new President will

be in place. Nor does this provision have any effect on the court cases

and settlements currently underway challenging the validity of the

third amendment. As the Senator from Tennessee said yesterday, ``this

legislation does not prejudice'' any of those cases.

  Mr. REID. I associate myself with the comments of the Senator from

Ohio, Mr. Brown. If it turns out to be in the best interest of

borrowers, the economy or to protect taxpayers, the next administration

could elect to end the conservatorship on January 2, 2018. This is the

view of the Treasury Department as well. I would like to submit a

letter written to me on this issue that states that the provision binds

the Treasury only until January 1, 2018, and has no effect after that.

  The agreement for this language to be included in the omnibus was

that the prohibition would sunset after 2 years and not create a

perpetual conservatorship. As then-Secretary Paulson described,

conservatorship was meant to be a ``time out'' not an indefinite state

of being.

  Madam President, I ask unanimous consent that the Treasury letter be

printed in the Record at the conclusion of the remarks by Senator

Brown.

  Mr. BROWN. Madam President, I thank the Majority Leader. The FHFA and

Treasury Department could have placed the GSEs into receivership if the

intent was to liquidate them. The purpose of a conservatorship is to

preserve and conserve the assets of the entities in conservatorship

until they are in a safe and solvent condition as determined by their

regulator.

  There being no objection, the material was ordered to be printed in

the Record, as follows:

 

                                  Department of the Treasury,

 

                                Washington, DC, December 17, 2015.

    Hon. Harry Reid,

    Democratic Leader, U.S. Senate,

    Washington, DC.

      Dear Mr. Leader: In response to your request for our view,

    the Treasury Department interprets the language of Section

    702 of Division O of the Military Construction and Veterans

    Affairs and Related Agencies Appropriations Act, 2016, to

    mean that subsection (b) imposes a prohibition that is

    binding until January 1, 2018. It would not be binding after

    that date.

          Sincerely,

                                                        Anne Wall,

                      Assistant Secretary for Legislative Affairs.

[Guest cherzeca]

Good stuff Doug!

[doughishere]

Word on the street is that this is a direct refutation of the lawyers argument recently filed in the Perry appeal! Mr.Brown is Sherrod Brown, Senator from the great state of Ohio.

[Luke 532]

Hmmm...

 

 

Mr. BROWN. I will say to my colleague from New York that it does not.

That is not the effect of the language. Any number of decisions could

be made after that date, when a new Congress and a new President will

be in place. Nor does this provision have any effect on the court cases

and settlements currently underway challenging the validity of the

third amendment. As the Senator from Tennessee said yesterday, ``this

legislation does not prejudice'' any of those cases.

[TwoCitiesCapital]

Hmmm...

 

 

Mr. BROWN. I will say to my colleague from New York that it does not.

That is not the effect of the language. Any number of decisions could

be made after that date, when a new Congress and a new President will

be in place. Nor does this provision have any effect on the court cases

and settlements currently underway challenging the validity of the

third amendment. As the Senator from Tennessee said yesterday, ``this

legislation does not prejudice'' any of those cases.

 

Maybe a settlement will be announced on New Year's eve as to avoid an bad press from settling with hedge funds. You know how this administration works...

 

http://www.forbes.com/sites/erikkain/2012/01/02/president-obama-signed-the-national-defense-authorization-act-now-what/

[merkhet]

Hm... that has to be an accidental statement. If settlements were underway, there's no way that nothing would have leaked by now, right?

[doughishere]

Why would you even go near saying something like that in an official record?

[hardincap]

What incentive does the gov have to settle now vs taking a "wait and see" approach?

[Luke 532]

Hm... that has to be an accidental statement. If settlements were underway, there's no way that nothing would have leaked by now, right?

 

It's probably nothing, just a misstatement. 

[Guest cherzeca]

I agree no way a senator could know about settlement discussions and there would have been no prior leak.

But I don't understand what corker's purpose was. Why do it if no legit fear that treasury was thinking about a transaction?  And then why not make it clear that there couldn't be a 4th A w/o congressional approval?

[muscleman]

I agree no way a senator could know about settlement discussions and there would have been no prior leak.

But I don't understand what corker's purpose was. Why do it if no legit fear that treasury was thinking about a transaction?  And then why not make it clear that there couldn't be a 4th A w/o congressional approval?

 

It is indeed weird. Maybe he was just trying to show some progress on his GSE reform work? If this new jump start bill does nothing to intervene the current lawsuits, then it doesn't really do anything. Funny it is called jump start bill. More like a road block bill.

[doughishere]

I agree no way a senator could know about settlement discussions and there would have been no prior leak.

But I don't understand what corker's purpose was. Why do it if no legit fear that treasury was thinking about a transaction?  And then why not make it clear that there couldn't be a 4th A w/o congressional approval?

 

It is indeed weird. Maybe he was just trying to show some progress on his GSE reform work? If this new jump start bill does nothing to intervene the current lawsuits, then it doesn't really do anything. Funny it is called jump start bill. More like a road block bill.

 

It does do something but not what the markets(and @wsj) thinks it does.

[doughishere]

I find it a little funny how Senator Corker on Fridays oration can do all the calculations on how much the Hedge funds are going to make but you know turn around and cant figure out how much he made when it comes to paying his taxes....never the less he does fail to mention how much the hedge funds will owe in taxes if/when the Hedge Funds decide to cash out....at his estimated gains.

 

 

Such is life.

[Sunrider]

The prefs have been beaten down by what? 25% in the last two months --- anyone think Berkowitz is getting out?

 

I find it a little funny how Senator Corker on Fridays oration can do all the calculations on how much the Hedge funds are going to make but you know turn around and cant figure out how much he made when it comes to paying his taxes....never the less he does fail to mention how much the hedge funds will owe in taxes if/when the Hedge Funds decide to cash out....at his estimated gains.

 

 

Such is life.

[Guest cherzeca]

perry and berkowitz appear to be in it to win it. Paying huge legal fees. It's the free riding hedge funds who pop in and out imo

[merkhet]

The prefs have been beaten down by what? 25% in the last two months --- anyone think Berkowitz is getting out?

 

I find it a little funny how Senator Corker on Fridays oration can do all the calculations on how much the Hedge funds are going to make but you know turn around and cant figure out how much he made when it comes to paying his taxes....never the less he does fail to mention how much the hedge funds will owe in taxes if/when the Hedge Funds decide to cash out....at his estimated gains.

 

 

Such is life.

 

If Berkowitz was getting out, I suspect the price would be much lower. He owns a ton.

[hardincap]

Berkowitz owns over 54m fnmas shares. Most he could have done is lighten up a little, but he's said earlier this year that he plans to invest for a very long time.