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

[deadspace]

has anyone worked in a valuation for the common stock under a scenario where the companies take on a utility model with capped 10% returns on capital and assuming all the junior preferred gets turned to equity?

 

Berkowitz is mainly in the preferred a and he is unlikely to bend over backwards to support the common. Akmans valuation seems too high under a scenario where the companies have capped returns

 

Of course we would have to assume the Sr preferred are deemed payed and no other dirty tricks arise

[Guest cherzeca]

has anyone worked in a valuation for the common stock under a scenario where the companies take on a utility model with capped 10% returns on capital and assuming all the junior preferred gets turned to equity?

 

Berkowitz is mainly in the preferred a and he is unlikely to bend over backwards to support the common. Akmans valuation seems too high under a scenario where the companies have capped returns

 

Of course we would have to assume the Sr preferred are deemed payed and no other dirty tricks arise

 

there is this:  http://seekingalpha.com/article/3952016-fannie-mae-cheap-value-stock-overpriced-speculation

 

not exactly run according to your scenario, but re fnma, if $11B is core annual after tax net income, you get a pretty picture.

 

dont forget ackman's sohn deck only got to $23-$47 after a 5 year (as i recall) period post NWS invalidation and conservatorship release

[doughishere]

has anyone worked in a valuation for the common stock under a scenario where the companies take on a utility model with capped 10% returns on capital and assuming all the junior preferred gets turned to equity?

 

Berkowitz is mainly in the preferred a and he is unlikely to bend over backwards to support the common. Akmans valuation seems too high under a scenario where the companies have capped returns

 

Of course we would have to assume the Sr preferred are deemed payed and no other dirty tricks arise

 

Start one up. Share it with us when you get it.

[doughishere]

Cherz, Merk

 

Whatching "people vs oj" what are the ramifications/possibility/odds of the govt. referencing material that they didn't hand over in discovery in their oral arguments?

 

Not really concerned....just curious.

[deadspace]

One legal question I had is this

 

As we know the government can take anything it wants. It just needs to provide compensation

But is it possible that a judge rules against the government but then suggests that the compensation should be the price of the shares at the time of the 2012 taking which for FNMA was 25 cents

I'm not sure what the legal precedents are around this issue

 

Because if this is possible outcome then the actions by government in 2012 makes sense as it gave them a bookmark on the 2012 price

( a price they knew would soon rise )

Hence If courts rule against them they only pay the 2012 price and if courts rule for them then they pay zero

 

 

 

 

Because

[merkhet]

Cherz, Merk

 

Whatching "people vs oj" what are the ramifications/possibility/odds of the govt. referencing material that they didn't hand over in discovery in their oral arguments?

 

Not really concerned....just curious.

 

No idea. Too vague a question. It'd be difficult for defendants to reference materials that plaintiffs don't have without having to hand over those materials.

 

One legal question I had is this

 

As we know the government can take anything it wants. It just needs to provide compensation

But is it possible that a judge rules against the government but then suggests that the compensation should be the price of the shares at the time of the 2012 taking which for FNMA was 25 cents

I'm not sure what the legal precedents are around this issue

 

Because if this is possible outcome then the actions by government in 2012 makes sense as it gave them a bookmark on the 2012 price

( a price they knew would soon rise )

Hence If courts rule against them they only pay the 2012 price and if courts rule for them then they pay zero

 

Because

 

That's certainly a possible outcome, but I think it's unlikely. I think the analogy I used before is that you plant an apple orchard and a few weeks later, the government takes the property. Do you get paid the value of the raw land or the value of the orchard? It'll depend on how the damages section gets litigated and where the judge sides on it.

 

Also, another reason to not to own the common. It's hard to argue what the common will be worth. There's no anchor that you can latch on to and provide a valuation. It's a lot easier to argue that there was going to be $X dollars coming into the enterprise and therefore preferreds should be valued at par.

[merkhet]

The Jacobs case teleconference is today @ 2pm. Could be an interesting day.

[Guest cherzeca]

One legal question I had is this

 

As we know the government can take anything it wants. It just needs to provide compensation

But is it possible that a judge rules against the government but then suggests that the compensation should be the price of the shares at the time of the 2012 taking which for FNMA was 25 cents

I'm not sure what the legal precedents are around this issue

 

Because if this is possible outcome then the actions by government in 2012 makes sense as it gave them a bookmark on the 2012 price

( a price they knew would soon rise )

 

 

Hence If courts rule against them they only pay the 2012 price and if courts rule for them then they pay zero

 

 

 

 

Because

 

there are two litigation theories: takings in federal court of claims, and lack of statutory authority in perry and hindes/jacobs.

 

if you think only the takings case will win, you should be in preferred.  if you think lack of statutory authority cases will win, you can be in preferred or common.

 

 

[doughishere]

One legal question I had is this

 

As we know the government can take anything it wants. It just needs to provide compensation

But is it possible that a judge rules against the government but then suggests that the compensation should be the price of the shares at the time of the 2012 taking which for FNMA was 25 cents

I'm not sure what the legal precedents are around this issue

 

Because if this is possible outcome then the actions by government in 2012 makes sense as it gave them a bookmark on the 2012 price

( a price they knew would soon rise )

 

 

Hence If courts rule against them they only pay the 2012 price and if courts rule for them then they pay zero

 

 

 

 

Because

 

there are two litigation theories: takings in federal court of claims, and lack of statutory authority in perry and hindes/jacobs.

 

if you think only the takings case will win, you should be in preferred.  if you think lack of statutory authority cases will win, you can be in preferred or common.

 

 

My lawyer buddy at UChicago asked the same thing...ie. whats the value at the time of the nws? What most people fail to see in the markets is that the common stock has the residual claims on any assets in the event of liquidation, common shareholders have these rights to a company's assets only after bondholders, preferred shareholders and other debtholders have been paid in full.....that is the definition of common stock...not some ticker symbol with a monetary value next to it that flashes on CNBC.

 

 

I dont get why people cant put this together......It doesnt matter what "price" the common stock trades at....what matters is the residual claims...and.....there was no liquidation. Shit it could be argued taht a liquidation would have been better for the shareholders. There was a company making a metric shit ton of cash, still is, that the govt purposefully left a residual claim on the common and preferred stock.

 

 

I just want my residual claim that was set forth in the original deal...the NWS was a reneging of a deal when the future looked brighter for hedge funds......i dont get whats so difficult about that? This isnt rocket science.

[deadspace]

I agree with this but don't forget the common is subject to unpredictable degrees of dilution

If on top of the dilution the new Fannie Freddie has a cap on profit as do most utilities then that further lessens its value

Much of that cash flow that people are attributing to the common in their valuation may be going to the government as a fee for the implicit guarantee

 

I see the preferred shares as a bit of a hedge to a bad outcome in the common

 

What the appropriate common to preferred ratio to hold is a matter of personal opinion

[Eye4Valu]

What's interesting to me is that Bruce holds a relatively small common position in Fairholme Fund, but not in Fairholme Allocation Fund. He holds relatively large amounts of preferred in both. The Allocation Fund is supposed to be for small ideas that could have a large impact. You would think he would own some common in the Allocation Fund for that reason. The fact that he doesn't suggests to me that he sees the common as more of an option, and placed his allocation of it in the larger Fairholme Fund.

[Guest cherzeca]

I agree with this but don't forget the common is subject to unpredictable degrees of dilution

If on top of the dilution the new Fannie Freddie has a cap on profit as do most utilities then that further lessens its value

Much of that cash flow that people are attributing to the common in their valuation may be going to the government as a fee for the implicit guarantee

 

I see the preferred shares as a bit of a hedge to a bad outcome in the common

 

What the appropriate common to preferred ratio to hold is a matter of personal opinion

 

dont disagree. other factors are liquidity, and whether it is more likely that there will be many buyers of common or preferred after NWS invalidation.  this last is not a valuation issue, but more a market dynamics issue.

[doughishere]

What's interesting to me is that Bruce holds a relatively small common position in Fairholme Fund, but not in Fairholme Allocation Fund. He holds relatively large amounts of preferred in both. The Allocation Fund is supposed to be for small ideas that could have a large impact. You would think he would own some common in the Allocation Fund for that reason. The fact that he doesn't suggests to me that he sees the common as more of an option, and placed his allocation of it in the larger Fairholme Fund.

 

 

Its not that interesting......To be fair there are a lot of other funds out there that hold significant portions of stock....Pershing, for instance last time they reported controlled nearly 9% of the common.

 

 

Edit: Third Ave has holdings in the prefs....http://thirdave.com/wp-content/uploads/2016/01/TAF-Shareholder-Letters-and-Report-Q4-2015.pdf

 

 

Who knows what Perry has........You gatta really hunt up and see who holds this....its not just Fairholme .

 

 

 

serenity now....lol....sorry....this is just dragging.

 

[merkhet]

Well, it'll continue to drag for a little longer:

 

Minute Entry for proceedings held before Judge Gregory M. Sleet – Telephone Conference held on 3/28/2016. Discussion regarding the recent MDL-related filings and how to proceed with the pending motions to dismiss. The Court will stay the case until the MDL Panel rules on the pending motion to transfer. Defendant Federal Housing Finance Agency is directed to file a form of order staying this case, and the recently filed related case once it is assigned to Judge Sleet. (Court Reporter Kevin Maurer.) (mdb)

 

The next date to consider is April 15, 2016 for the oral arguments in the Perry Appeal.

[Luke 532]

Well, it'll continue to drag for a little longer:

 

Minute Entry for proceedings held before Judge Gregory M. Sleet – Telephone Conference held on 3/28/2016. Discussion regarding the recent MDL-related filings and how to proceed with the pending motions to dismiss. The Court will stay the case until the MDL Panel rules on the pending motion to transfer. Defendant Federal Housing Finance Agency is directed to file a form of order staying this case, and the recently filed related case once it is assigned to Judge Sleet. (Court Reporter Kevin Maurer.) (mdb)

 

The next date to consider is April 15, 2016 for the oral arguments in the Perry Appeal.

 

What is your best guess as to how long the MDL Panel will take to rule?

[doughishere]

Well, it'll continue to drag for a little longer:

 

Minute Entry for proceedings held before Judge Gregory M. Sleet – Telephone Conference held on 3/28/2016. Discussion regarding the recent MDL-related filings and how to proceed with the pending motions to dismiss. The Court will stay the case until the MDL Panel rules on the pending motion to transfer. Defendant Federal Housing Finance Agency is directed to file a form of order staying this case, and the recently filed related case once it is assigned to Judge Sleet. (Court Reporter Kevin Maurer.) (mdb)

 

The next date to consider is April 15, 2016 for the oral arguments in the Perry Appeal.

 

Where'd you get that from PACER?

[merkhet]

Well, it'll continue to drag for a little longer:

 

Minute Entry for proceedings held before Judge Gregory M. Sleet – Telephone Conference held on 3/28/2016. Discussion regarding the recent MDL-related filings and how to proceed with the pending motions to dismiss. The Court will stay the case until the MDL Panel rules on the pending motion to transfer. Defendant Federal Housing Finance Agency is directed to file a form of order staying this case, and the recently filed related case once it is assigned to Judge Sleet. (Court Reporter Kevin Maurer.) (mdb)

 

The next date to consider is April 15, 2016 for the oral arguments in the Perry Appeal.

 

What is your best guess as to how long the MDL Panel will take to rule?

 

¯\_(ツ)_/¯

 

May 26, 2016 is the next time the panel meets. No clue how long it takes after that.

 

And I got that from The Site Which Shall Not Be Named. I'm sure it'll be on GSELinks soon.

 

Edited: Changed date as @cherzeca was right re next MDL panel

[Guest cherzeca]

actually may 26 in chicago is next panel hearing. 

 

4/6 is the deadline for Ps to file oppo papers to consoldiation, and obviously potter anderson's papers on behalf of hindes/jacobs will be most interesting.

 

i guess judge sleet could do nothing else.  if panel wants to consolidate, that is above his pay grade, and i guess it made no sense for him to push things along unless he knew he was going to keep the case

[deadspace]

What is continuously ignored with all these delays is that the defendants continue  to cash their cheque on the companies dividends.

 

If this was addressed finally their may be some possibility of Justice being served

 

Otherwise I suspect arteries will harden before anything is resolved

[doughishere]

actually may 26 in chicago is next panel hearing. 

 

4/6 is the deadline for Ps to file oppo papers to consoldiation, and obviously potter anderson's papers on behalf of hindes/jacobs will be most interesting.

 

i guess judge sleet could do nothing else.  if panel wants to consolidate, that is above his pay grade, and i guess it made no sense for him to push things along unless he knew he was going to keep the case

 

Give me a break. Any thoughts on them pushing Perry back?

[doughishere]

In some of your speeches and remarks to the press of late (as recently as Thursday), you have chided a number of folks for not adhering to the Rule of Law1

 

What did the President say on Thursday?

[TonyG]

http://www.urban.org/tim-howard-fixing-what-works

 

 

Tim Howard advocating a 2 percent capital ratio and government to not exercise the warrants. Posted this on his website as well and check who was the first person to comment lol

[merkhet]

Great read. Hopefully, we hear back from Sweeney soon.

[Luke 532]

http://www.urban.org/tim-howard-fixing-what-works

 

 

Go here for comments: http://howardonmortgagefinance.com/2016/03/31/fixing-what-works/

 

Interesting...

 

DavidHStevens

March 31, 2016 at 7:56 am

 

Thanks. Definitely support this series on GSE options that Urban is doing. Helps flush out the range of the perspectives and options.

 

Looking forward to reading all of them.

 

David H. Stevens President and CEO Mortgage Bankers Association 1919 M Street, NW, 5thFloor | Washington, DC 20036 TEL: (202) 557-2701 |mba.org

[merkhet]

Some more interesting court filings:

 

Hamish P.M. Hume, Esq., at Boies, Schiller & Flexner LLP, filed a motion (Doc. 304) under seal today in Fairholme v. U.S. asking Judge Sweeney to remove the protected information designations from documents lodged with the D.C. Circuit and cited in the merits briefs and, in the alternative, requesting modification of the protective order to permit reference to these materials at oral argument before the D.C. Circuit.

 

The docket sheet in the Court of Federal Claims indicates that responses to today's motion are due by Apr. 18, 2016 -- which would be a couple of days after the Court of Appeals hears oral arguments in Perry v. Lew, No. 14-5243 (D.C. Cir.).

 

Followed by a response from Appellees:

 

The government delivered a two-page notice to Judge Sweeney saying it intends to oppose the Class Plaintiffs' request and file a formal response by Fri., Apr. 8.