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

[DRValue]

So with what we know from Calabria talking anyone have any thoughts why the prfd isnt with par? I think at this point a discussion as to whether or not dividends are eventually turned on is worth a thought too.

 

Dead money until redeemed or Divs turned on. Uncertainty still too high until its official to justify CAGR to Par.

[Midas79]

Joe Light thinks that an IPO (but really an SPO, why does everyone keep saying IPO??) will be difficult to impossible.

https://twitter.com/joelight/status/1126840702577577985

 

The most interesting tweet in the thread, to me, is this one.

https://twitter.com/HoldenWalker99/status/1126843902474977280

It will be tricky, but the most significant variable - #5 - has been a risk since the GSEs were chartered... and a legislatively mandated cap on market share to allow new entrants would result in overcapitalization & return of excess capital to investors.

 

I fully agree that Congress coming in and messing everything up is a significant risk, but this line of thought hadn't occurred to me before. It makes perfect sense, and if this return of capital idea is built in somehow then it will make the capital raise far easier.

[Guest cherzeca]

Joe Light thinks that an IPO (but really an SPO, why does everyone keep saying IPO??) will be difficult to impossible.

https://twitter.com/joelight/status/1126840702577577985

 

The most interesting tweet in the thread, to me, is this one.

https://twitter.com/HoldenWalker99/status/1126843902474977280

It will be tricky, but the most significant variable - #5 - has been a risk since the GSEs were chartered... and a legislatively mandated cap on market share to allow new entrants would result in overcapitalization & return of excess capital to investors.

 

I fully agree that Congress coming in and messing everything up is a significant risk, but this line of thought hadn't occurred to me before. It makes perfect sense, and if this return of capital idea is built in somehow then it will make the capital raise far easier.

 

can someone post tweet text

[Midas79]

can someone post tweet text

 

So Fannie, Freddie will have:

1. No QM advantage

2. No explicit guarantee

3. Bank-like capital reqs

4. No securitization infrastructure advantage

5. Uncertain outlook for future legislation or competitors

2020 IPO roadshow here we come?

[DRValue]

Joe Light thinks that an IPO (but really an SPO, why does everyone keep saying IPO??) will be difficult to impossible.

https://twitter.com/joelight/status/1126840702577577985

 

The most interesting tweet in the thread, to me, is this one.

https://twitter.com/HoldenWalker99/status/1126843902474977280

It will be tricky, but the most significant variable - #5 - has been a risk since the GSEs were chartered... and a legislatively mandated cap on market share to allow new entrants would result in overcapitalization & return of excess capital to investors.

 

I fully agree that Congress coming in and messing everything up is a significant risk, but this line of thought hadn't occurred to me before. It makes perfect sense, and if this return of capital idea is built in somehow then it will make the capital raise far easier.

 

can someone post tweet text

 

So Fannie, Freddie will have:

1. No QM advantage

2. No explicit guarantee

3. Bank-like capital reqs

4. No securitization infrastructure advantage

5. Uncertain outlook for future legislation or competitors

2020 IPO roadshow here we come?

 

2 is no issue to me. 3 wont happen, if it does RoE will be utility like so abbsolute return will still be $11-$12b per year. 5 has always been the case.

 

 

 

 

[BTShine]

"@MarkCalabria is waiting on a plan from @USTreasury on reform for Fannie & Freddie, which he expects this summer. (one of two)"

 

Entire tweets and replies compiled here, or should I say his stated timeline of activity as per the reporter (video of interview awaited):

https://twitter.com/Jenniferisms/with_replies

 

Video is live now:

 

https://video.foxbusiness.com/v/6035185923001/#sp=show-clips

[Guest cherzeca]

thanks for posting text.  here is my reaction.

 

light:

So Fannie, Freddie will have:

1. No QM advantage

2. No explicit guarantee

3. Bank-like capital reqs

4. No securitization infrastructure advantage

5. Uncertain outlook for future legislation or competitors

2020 IPO roadshow here we come?

 

1. Calabria has said pro and con on this.  will be removed, but not right away, in his senate confirm testimony.

2. treasury can come up with an implicit guaranty fee, which should signal to market that GSEs are tbtf

3. calabria has intimated that the current proposal (3.25%) is fine in senate testimony.  was this Calabria foot in mouth disease again?

4. never really was one

5. true

[Jcmeg35]

@BTShine, thanks for posting

 

Two important comments that Calabria made that were not tweeted out:

 

1. Treasury will lead the Recap - not surprising but broadly positive.

2. Capital levels of 4-5%...this is substantially higher than previous comments and FHFA's initial proposal - obviously a negative. Hard to see how investors would be willing to pony that much $$ when it would weigh on ROE and could be further dampened down the line by competition. 

 

"@MarkCalabria is waiting on a plan from @USTreasury on reform for Fannie & Freddie, which he expects this summer. (one of two)"

 

Entire tweets and replies compiled here, or should I say his stated timeline of activity as per the reporter (video of interview awaited):

https://twitter.com/Jenniferisms/with_replies

 

Video is live now:

 

https://video.foxbusiness.com/v/6035185923001/#sp=show-clips

[rros]

@BTShine, thanks for posting

 

Two important comments that Calabria made that were not tweeted out:

 

1. Treasury will lead the Recap - not surprising but broadly positive.

2. Capital levels of 4-5%...this is substantially higher than previous comments and FHFA's initial proposal - obviously a negative. Hard to see how investors would be willing to pony that much $$ when it would weigh on ROE and could be further dampened down the line by competition. 

 

"@MarkCalabria is waiting on a plan from @USTreasury on reform for Fannie & Freddie, which he expects this summer. (one of two)"

 

Entire tweets and replies compiled here, or should I say his stated timeline of activity as per the reporter (video of interview awaited):

https://twitter.com/Jenniferisms/with_replies

 

Video is live now:

 

https://video.foxbusiness.com/v/6035185923001/#sp=show-clips

On minute 15:20 reporter actually said 4.5% of risk-weighted assets. That would make it half the value. Risk weight is set at 50% for single family mortgage-related assets. GSEs have mostly single family loans pooled.

[Guest cherzeca]

@rros

 

so you are saying that calabria is calling for a 2.25% capital amount?

[rros]

@rros

 

so you are saying that calabria is calling for a 2.25% capital amount?

It looks like. She said:

 

"so does that mean that you have a certain amount of capital requirements, so 4.5% for risk-weighted assests, for instance, for the largest banks.." at which Calabria replied: "Exactly".

 

However, when the reporter brought up specific amounts in dollar terms, $250 billion, the amount was much higher than 2.25% of total assets. So, not completely clear.

[allnatural]

Shortly after he said 3 to 4 to 5%... and during his senate testimony he was ok w/ FHFA's 3.25%. So honestly I don't even think he knows.

[rros]

Shortly after he said 3 to 4 to 5%... and during his senate testimony he was ok w/ FHFA's 3.25%. So honestly I don't even think he knows.

Maybe it's a good thing he avoided nailing a straight dollar figure.

[Guest cherzeca]

Shortly after he said 3 to 4 to 5%... and during his senate testimony he was ok w/ FHFA's 3.25%. So honestly I don't even think he knows.

 

what's astonishing is that calabria is rattling numbers off top of head while his agency has actually proposed a specific capital plan

[Guest cherzeca]

there is one aspect to Calabria's musings out loud that I like....saying that he felt obligated by HERA to proceed with administrative reform if congress doesn't act...meaning he interprets the conservator's role as a mandate to restore soundness...so how can the litigation proceed with fhfa counsel claiming the exact opposite?

[rros]

Shortly after he said 3 to 4 to 5%... and during his senate testimony he was ok w/ FHFA's 3.25%. So honestly I don't even think he knows.

 

what's astonishing is that calabria is rattling numbers off top of head while his agency has actually proposed a specific capital plan

It was strange...

 

Some rough numbers as of 3/31/19. Fannie's book of business is composed approximately of 2.963 trillion mortgage-related assets for single family units and 316 billion mortgage-related assets for multi-family. So over 90% of its book of business is composed of single-family mortgage related assets. The "risk-weighted" concept is critical in determining a final dollar figure.

 

Banks may see a final capital requirement figure closer to a 4.5% of total assets because of their particular mix of assets. Fannie or Freddie, instead, while using the same ratios, can achieve a much lower figure due to only having one type of (high quality) collateral. I believe the FDIC has implemented regulatory capital levels at 50% risk weight for residential mortgages (not being precise here, so correct me please).

[DocSnowball]

there is one aspect to Calabria's musings out loud that I like....saying that he felt obligated by HERA to proceed with administrative reform if congress doesn't act...meaning he interprets the conservator's role as a mandate to restore soundness...so how can the litigation proceed with fhfa counsel claiming the exact opposite?

 

From his Senate hearing testimony statement:

https://www.banking.senate.gov/imo/media/doc/Calabria%20Testimony%202-14-19.pdf

"I have even brought with me today my nearly decade old, dog-eared personal copy of HERA. Whatever the policy issue, my first question will always be “what does the statute say?”"

 

Now, he says the statute obligates him to get the companies out of conservatorship.

 

I was wrong, receivership is not his plan of action, neither Treasury's who will lose their investment in such scenario - this risk is disconfirmed based on his statements. Therefore, risk zero is gone, yay!. Competitors will be invited via new charters if Congress legislates, who knows if and when but the bank lobby may get it done eventually. FnF may shrink their footprint over time but this is unlikely to be a problem for a preferred investor (smaller footprint = lesser capital raise needed). He mentions NWS is likely to be gone in the new year, and there will be a negotiated agreement between Treasury and FHFA on the plan ahead and its details, along with what Treasury will do with its stake.

 

Inverting to what all will be needed to do a successful capital raise and capital retention is a good mental exercise here for me - the preferred will either stay and wait their turn to get dividends turned on, or be converted to common in some ratio I have no control over, or be called at par. All in all, this is now a reasonable thesis to continue to carry forward administratively. The lawsuits do need to go away for the capital raise to occur smoothly, and thus provide a margin of safety, especially if you are represented. 

 

And fwiw what a crisp interview, I'm truly impressed by how well she had prepared and let him do the talking he really likes to do

[orthopa]

there is one aspect to Calabria's musings out loud that I like....saying that he felt obligated by HERA to proceed with administrative reform if congress doesn't act...meaning he interprets the conservator's role as a mandate to restore soundness...so how can the litigation proceed with fhfa counsel claiming the exact opposite?

 

From his Senate hearing testimony statement:

https://www.banking.senate.gov/imo/media/doc/Calabria%20Testimony%202-14-19.pdf

"I have even brought with me today my nearly decade old, dog-eared personal copy of HERA. Whatever the policy issue, my first question will always be “what does the statute say?”"

 

Now, he says the statute obligates him to get the companies out of conservatorship.

 

I was wrong, receivership is not his plan of action, neither Treasury's who will lose their investment in such scenario - this risk is disconfirmed based on his statements. Therefore, risk zero is gone, yay!. Competitors will be invited via new charters if Congress legislates, who knows if and when but the bank lobby may get it done eventually. FnF may shrink their footprint over time but this is unlikely to be a problem for a preferred investor (smaller footprint = lesser capital raise needed). He mentions NWS is likely to be gone in the new year, and there will be a negotiated agreement between Treasury and FHFA on the plan ahead and its details, along with what Treasury will do with its stake.

 

Inverting to what all will be needed to do a successful capital raise and capital retention is a good mental exercise here for me - the preferred will either stay and wait their turn to get dividends turned on, or be converted to common in some ratio I have no control over, or be called at par. All in all, this is now a reasonable thesis to continue to carry forward administratively. The lawsuits do need to go away for the capital raise to occur smoothly, and thus provide a margin of safety, especially if you are represented. 

 

And fwiw what a crisp interview, I'm truly impressed by how well she had prepared and let him do the talking he really likes to do

 

Again outside of just the time of waiting still no excuse in my mind for an ultimate value of par for the preferred. 2/3 scenarios you mention directly relate to par including relation to dividend turn on and by default conversion to common would have to be on a = value to par basis to smooth things out for a capital raise/lawsuits.

 

Calabria continues to see how much he can throw out there and how much flack he gets in return. We have heard and will continue to hear crickets from MBA, Maxine waters, Crapo. Ill go on the record here as saying outside of maybe a charter change or guarantee Congress will have nothing to do with any capital raising etc and Admin will act to the extent that they can.

 

Am I the only one that seems to think this trickle of info via bloombers/scheduled interview on fox /etc is a little calculated? This is no doubt the deluge of juicy details Otting was talking about on the recording. There is a plan and everyone has signed off. Your just getting bits and pieces of it now in a calculated manor that will be adjusted for push-back if any.

[SnarkyPuppy]

Trickle of information is incredibly calculated.  Contrary to others view- Calabria is an extremely thoughtful and intelligent guy.  They are going through the motions here. 

 

I'm stunned at some of the negative comments here.  We have the head of the FHFA stating end of net worth sweep and IPO in the next 12 months with lawsuits naturally going away. 

 

Yet prices within 10% of 2014 highs when a) original terms had not been paid off b) both tsy and FHFA anti recap

 

You can argue semantics of whether this classifies as speculation or investing - but the classification won't matter when the inevitable outcome plays out

[rros]

Until the Srs. are completely removed from above us, Jrs. will not trade much above 50% par.

 

Calabria deferred that to Treasury. He referred to it as "treasury's investment" putting the warrants and the Srs. in the same bag. So either by court order or by Mnuchin's signature the Srs. must get vaporized. I imagine it will all be part of an amendment and it will all happen by the 4Q. Ideally, before.

 

To tackle Tim Howard's apprehension to capital raising without enough guarantees, the en banc panel should deliver a really painful blow to Treasury itself. Goal being any incoming government official will think three times before playing fast-and-loose with other people's property.

[Jcmeg35]

To tag onto @SnarkyPuppy's comments, it is great to see the goal posts for the downside scenario slowly moving forward. Going back in time the need was for a court decision to be the catalyst for commencing recap. Even more recently during the Calabria confirmation process, there was a concern from some that receivership might be a legitimate path that Calabria would want to pursue. While a lot of uncertainty and risk still remains, it seems the probability of the downside scenarios continues to be diminished.

 

The conversation has shifted from court outcomes/and eliminating the entities to the timing of release and what eventual capital levels of the entities will be. Even super high capital levels are much better "downside" scenarios compared to where we were a few months ago.

[SnarkyPuppy]

Uncertainty != Risk

[Jcmeg35]

I fully agree. However, I think there are still a lot of risks that remain that could gum up/halt the process. While many of the risks have diminished there are still a bunch that exist.

 

Uncertainty != Risk

[allnatural]

During AB interview he said sept/oct to amend spsa (stop nws), then in fox interview he reiterated that would be completed by the fall. there is nothing inconsistent with those comments. His first half of 2020 comment was regarding an IPO which makes sense timeline wise. I know reading comprehension is hard but this is basic stuff

 

"Calabria = Mnuchin 2.0 .  Lots of excuses as if Calabria has been sleeping for last 10 years when he was the architect of HERA.

 

Bullshit. He first says October, November, then says first half of 2020.  Will keep moving the goalpost. He is ready to make another excuse of elections and into 2021 (Mnuchin had an excuse of Tax Reform and one excuse after other. Jan 6th is long gone, Otting didn't live up to his promise either. Just talk).

 

They need the money.  Period. 

 

If they see they are losing elections, they will wrap it up in first half of 2020. If not, they will not release it for another 4 years. Politics at its worst. Don’t fall for it. The possibility of them losing elections is the best chance for GSE shareholders to get their money back as they will quickly release them on their way out "

[Guest cherzeca]

During AB interview he said sept/oct to amend spsa (stop nws), then in fox interview he reiterated that would be completed by the fall. there is nothing inconsistent with those comments. His first half of 2020 comment was regarding an IPO which makes sense timeline wise. I know reading comprehension is hard but this is basic stuff

 

"Calabria = Mnuchin 2.0 .  Lots of excuses as if Calabria has been sleeping for last 10 years when he was the architect of HERA.

 

Bullshit. He first says October, November, then says first half of 2020.  Will keep moving the goalpost. He is ready to make another excuse of elections and into 2021 (Mnuchin had an excuse of Tax Reform and one excuse after other. Jan 6th is long gone, Otting didn't live up to his promise either. Just talk).

 

They need the money.  Period. 

 

If they see they are losing elections, they will wrap it up in first half of 2020. If not, they will not release it for another 4 years. Politics at its worst. Don’t fall for it. The possibility of them losing elections is the best chance for GSE shareholders to get their money back as they will quickly release them on their way out "

 

I just dont know why calabria is saying all of this stuff, unless the treasury plan is complete and investment bankers have been consulted.