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

[merkhet]

Marsha Blackburn is on the Trump transition team. See article from a year ago:

 

http://nlihc.org/article/bill-would-create-gse-reserve-fund-end-treasury-sweep

 

This idea is still sweeping profits out of Fannie and away from owners.

 

Sort of...

 

Under H.R. 1673, the FHFA Director would decide whether to use funds held in the reserve if Fannie Mae’s or Freddie Mac’s losses exceed their capital reserves. The FHFA Director would also issue regulations delineating the standards and procedures for doing so.

 

Funds in the secondary reserve would not be considered part of Fannie Mae’s and Freddie Mac’s “capital, capital reserve, or otherwise an asset of the enterprise” other than as part of an approved capital restoration plan.

 

Once the conservatorship ends, the FHFA Director would dissolve the secondary reserve fund. Any amounts left would be used first to meet capital requirements as required by law, and then be devoted to earnings.

 

The plan was to stop the sweep and dump the earnings into a reserve fund that could act as capital during a downturn. Then, once the conservatorship ends, it would be dumped into the GSEs as capital.

 

I think it was structured this way because the thought was, "well, I don't know that we have the votes to figure out the capital requirements, but let's sequester the funds until we do."

[orthopa]

250k a crack dinner

 

Fireside chat in September

 

I think one is very naive to think that Trump isnt VERY aware of Paulsons', Berkowitzs', and Icahns' FNMA, FMCC positions and how he could reciprocate. Not to mention the guy who likely raised 10's of millions for the president elect is an adviser on housing.

 

Its almost too obvious.

 

 

[orthopa]

Excerpts from the Huffington post article

 

“John Paulson made a big bet on Donald Trump’s campaign and it’s going to pay off in a big, big way,” said Michael Kink, president of the Strong Economy for All Coalition that sponsors the group Hedge Clippers, which investigates hedge fund influence in American politics.

 

Through the DCI Group, Paulson and other big investors in Fannie and Freddie have hired economic experts, including former Clinton administration honcho Robert Shapiro, to pen papers favorable to their cause. They’ve paid money to civil rights groups to sign their name on to policies that would benefit the hedge funds.

 

This type of shadowy blending of private profit and the public interest was a centerpiece of Trump’s campaign, as he vowed to “drain the swamp” and put an end to corruption in Washington.

 

But the Trump campaign has been filled with DCI Group alumni throughout the election. Former DCI Group lobbyist Doug Davenport was traveling with the Trump campaign as an advisor. Jim Murphy, former president of DCI Group, was hired as Trump’s political director in June, but departed with 18 days to go on the campaign.

 

Joining Paulson on the Trump transition team is another supporter of his favored Fannie and Freddie policy: former Ohio Secretary of State Kenneth Blackwell. The far-right politician was tapped to lead Trump’s domestic policy transition team. In 2014, while working for a nonprofit founded by investors in Fannie and Freddie stock, he penned many op-eds calling for the hedge fund-backed policy of recapitalization and release.

 

Trump has routinely sided with the hedge fund campaigns throughout the campaign. The Republican Party platform enacted at the Republican National Convention in Cleveland included support for the recapitalization and release of Fannie and Freddie. He also endorsed the hedge fund campaign to pressure Puerto Rico to pay back debts to them first.

 

[orthopa]

I have looked in a couple places and couldn't find what Paulsons holdings are. If memory serves its preferred correct?

[Gregmal]

I have looked in a couple places and couldn't find what Paulsons holdings are. If memory serves its preferred correct?

 

Yes

[Guest cherzeca]

fwiw, what i wrote on another board

 

in the 3 trading days following the trump election, fnma common has gone up 62%. 

 

the most obvious reason for this is the expectation that, while a HRC administration would continue the Obama administration's hostility to the GSEs (after all, gene sperling left a senior advisory position responsible for housing policy in the obama administration to work on the HRC campaign), a trump administration would be far more willing to consider the recapitalization of the GSEs and release from conservatorship.

 

my own thinking has morphed somewhat from regarding fnma as a litigation event-driven trade to a possible longer term investment.  i believe it is substantially more likely than not (say 75-80%) that the perry appeals court will render a decision soon that will at least remand the case back to the district court for trial, or further fact finding and the production of complete administrative records.  as well, i believe the federal circuit will soon deny the govt's motion for grant of a writ of mandamus, resulting in the production of 56 documents against which the govt asserted various claims of privilege, with up to 11,000 additional documents subject to eventual production as well.  the govt will not want to litigate the validity of the 3rd amendment after remand in the face of this document production.

 

so i believe a settlement is much more likely post trump election than i did before.  people like ken blackwell (who wrote this: http://thehill.com/blogs/congress-blog/economy-budget/207937-treasury-stealing-from-fannie-and-freddie-shareholders ) and john paulson (who is long GSEs) are advising the trump transition team on domestic policy.  there has been a huge sentiment shift in favor of GSEs ability to continue in a reformed capacity (pure guaranty function, increased capital and capped return; see https://howardonmortgagefinance.com/2016/03/31/fixing-what-works/ ), recapitalized and released from conservatorship.  ackman mentioned to sorkin in the dealbook conference that he expected the GSEs to be resolved within one year of a trump administration.

 

now, all one has to hope for is that trump doesnt do something that gets him impeached before then.

[colinwalt]

"now, all one has to hope for is that trump doesnt do something that gets him impeached before then."

 

How about

 

"now, all one has to hope for is that trump doesnt do hasn't already done something that gets him impeached before then."

 

8)

[Guest wellmont]

it doesn't matter if djt gets impeached. his vice president will take over. and the djt administration, which will have been totally shaped by the current transition team, will remain in place, or change minimally. it increasingly looks like the net worth sweep was the "brilliant" idea of a few lone wolfs inside the BO administration. And this could be rectified quickly by the current administration in combination with rep control of both house and senate, whether DJT is pres or not.

[Mephistopheles]

it doesn't matter if djt gets impeached. his vice president will take over. and the djt administration, which will have been totally shaped by the current transition team, will remain in place, or change minimally. it increasingly looks like the net worth sweep was the "brilliant" idea of a few lone wolfs inside the BO administration. And this could be rectified quickly by the current administration in combination with rep control of both house and senate, whether DJT is pres or not.

 

The Republicans want to kill the GSEs, they don't like Govt housing involvement - for example, Corker. A Democrat Congress with Trump White House would have been the best for us.

 

 

[Guest wellmont]

the US gov is responsible for backstopping housing finance whether some repubs like it or not. and it will continue to be under any new plan. paulson is in the inner circle. he bet heavily on trump. icahn owns fannie shares. hedge funds are not going to be the whipping boys that they were for last 8 years.

 

us gov is going to need to finance the massive new spending. and owning 80% of fannie and freddie is a good start. common sense is going to prevail imo. a 65% rise in fnma may be "whispering" something. place your bets.

[hardincap]

@cherzeca, if there is a reversal, settlement is moot. if there is a remand and writ of mandamus is rejected (say the most probable scenario), government is backed into a corner and likely will have to eventually settle anyway. so I dont really see how trump changes settlement odds? i think at best trump brings the settlement scenario closer in time than later. he's starting with a clean slate and has no incentive (nor the attention span) to delay delay delay, unlike the obama administration.

[hardincap]

also i dont think we can assume that icahn still has financial interest in fannie mae. he bought shares pre-lamberth, and from what i know about icahn, i think he considered this a trade rather than a long term value investment.

[Guest wellmont]

from what I know about icahn he places bets, sometimes small, and waits to see what happens. by his standards it was a small bet with a chance for a big payoff. not sure why he would sell an extremely long term call option like that. and it doesn't matter if he did. what is important is it's entirely clear how he thinks about this issue. but your mileage may vary.

[Guest cherzeca]

@cherzeca, if there is a reversal, settlement is moot. if there is a remand and writ of mandamus is rejected (say the most probable scenario), government is backed into a corner and likely will have to eventually settle anyway. so I dont really see how trump changes settlement odds? i think at best trump brings the settlement scenario closer in time than later. he's starting with a clean slate and has no incentive (nor the attention span) to delay delay delay, unlike the obama administration.

 

i think trump has increased odds of settlement if there is remand.  but we will see.  i sure like seeing ken blackwell involved rather than gene sperling!

[orthopa]

Old article and we knew Icahn had a position but remember this was the guy who left Trumps party early to invest a billion dollars.

 

http://www.forbes.com/sites/nathanvardi/2014/06/03/carl-icahn-joins-bill-ackman-in-bet-on-fannie-and-freddie/#25ea267f326b

 

 

[CorpRaider]

That's all he could pull together at 3 a.m.

[Mephistopheles]

Here is my updated spreadsheet with the tickers. I had posted a while ago but I realized there were some mistakes with the linkings.

GSE_Tickers.xlsx

[Guest cherzeca]

Here is my updated spreadsheet with the tickers. I had posted a while ago but I realized there were some mistakes with the linkings.

 

thanks for this.

 

any idea why fnmat has been outperforming fnmas?

[Mephistopheles]

Here is my updated spreadsheet with the tickers. I had posted a while ago but I realized there were some mistakes with the linkings.

 

thanks for this.

 

any idea why fnmat has been outperforming fnmas?

 

I was wondering the same thing. My guess is that the fixed 8.25% dividend is drawing people in (in case it starts paying out again). FNMAT would trade quite a bit above par in that situation.

[Guest cherzeca]

Here is my updated spreadsheet with the tickers. I had posted a while ago but I realized there were some mistakes with the linkings.

 

thanks for this.

 

any idea why fnmat has been outperforming fnmas?

 

I was wondering the same thing. My guess is that the fixed 8.25% dividend is drawing people in (in case it starts paying out again). FNMAT would trade quite a bit above par in that situation.

 

agree with that, but my instinct is that if there is any recap, all of the prefs will be restructured

[Mephistopheles]

So here's something I've been wondering. What are the odds that Trump does away with the warrants? I know Paulson owns the preferred, but if he really believes in Trump and wants to have major stake, he can only do so via common due to liquidity. Same with Icahn who owns the common only as far as we know.

 

My question is, does the Executive Branch have control over the fate of the warrants, or does Congress have a say? If it's up to Trump, I can't imagine that the Hedge Funds will ignore an extra 5x return on top of what we may already get via NWS reversal. So, if it's up to the White House/Treasury to deal with the warrants, I can't help but think it's a >0% chance we get a reversal of the '08 bailout as well. Of course, a lot depends on what the Appeals Court says, but this assumes we get at least a remand.

[waynepolsonAtoZ]

So, the list of preferreds is missing FREGP, a $50 preferred, with a 5.81 percent indicated dividend rate.

 

So, the last time I calculated the T-Fud index I used a numerator of $175, which was the total price of the various preferreds. I ignore FNMFO, which has a redemption value of $105,000.

 

So, the denominator I use to calculate the so-called T-FUD index is $1,625.

 

So, the last time I calculated the T-Fud, the result was an average price to redemption value of 10.7778%. This is, obviously, over a week out of date, I think the tfud is around 15% now.

[waynepolsonAtoZ]

The SPSPAs signatories are Treasury and FNMA and FMCC, although really FHFA signed on their behalf for all practical purposes.

 

So, Treasury and FHFA can do a 4th Amendment or whatever without involvement of Congress.

 

Treasury has said they want Congress to restructure, but that was basically just a stalling tactic IMHO.

[Guest wellmont]

the pref could be swapped for common in a recap.  I believe ackman refers to the possibility of this in his slide deck. when ackman talks about the potential outcome he always assumes us gov keeps their 80% stake.

[Guest cherzeca]

http://www.politico.com/blogs/donald-trump-administration/2016/11/trump-said-to-narrow-choices-for-treasury-to-mnuchin-ross-231349