Jurgis Posted February 21, 2017 Share Posted February 21, 2017 Well, honestly, the court outcome never seemed like a strong bet to me in the first place--courts have a way of not coming out the way you think it should, as it just did. I think Mnuchin is the reason this thing became much more compelling. He's basically the same type of guy that would hold these things, and he wants the government to get out. If he wants the government out, he needs private shareholders to be at the table. If he kills all these shareholders, then they aren't coming to the table. But maybe someone can throw out an interpretation where Mnuchin can get it out of government control, replace it with something else, and still kill the value of the companies? He could liquidate, but that doesn't seem like the language he's using. If he isn't liquidating, then there needs to be some public value to the companies for them to exist. At the risk of inflaming this thread to another 400 pages, here are couple things that Mnuchin can probably do that won't make current shareholders happy: - Stop NWS as of now, but not roll back past NWS. Yeah, this is not a quick solution and I know everyone criticized me when I suggested this as possible step. - With weak legal situation, perhaps Mnuchin can settle for sub-par conversion of prefs to common plus huge common dilution with govt position, etc.? The argument against this is that this would be "Obama/Clinton" thing to do, but why not? Yeah, his buddies are screwed... but shareholders might take scraps now that legal situation is weak. Anyway, I'm not arguing the above solutions are high probability. But IMO between this and potential Congress "input", there might be some not-so-great outcomes for shareholders. Let's ask this differently? Who still thinks that par-solution has higher than 40% probability? Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted February 21, 2017 Share Posted February 21, 2017 Well, honestly, the court outcome never seemed like a strong bet to me in the first place--courts have a way of not coming out the way you think it should, as it just did. I think Mnuchin is the reason this thing became much more compelling. He's basically the same type of guy that would hold these things, and he wants the government to get out. If he wants the government out, he needs private shareholders to be at the table. If he kills all these shareholders, then they aren't coming to the table. But maybe someone can throw out an interpretation where Mnuchin can get it out of government control, replace it with something else, and still kill the value of the companies? He could liquidate, but that doesn't seem like the language he's using. If he isn't liquidating, then there needs to be some public value to the companies for them to exist. - With weak legal situation, perhaps Mnuchin can settle for sub-par conversion of prefs to common plus huge common dilution with govt position, etc.? The argument against this is that this would be "Obama/Clinton" thing to do, but why not? Yeah, his buddies are screwed... but shareholders might take scraps now that legal situation is weak. Regardless of how Mnuchin personally feels, he and the Trump administration has to worry about appearances (like every admin). I think US popular opinion may play role in the ultimate outcome and scoring a win for tax payers is an easy way to gain points with voters/opinion polls. I also don't understand or follow the proceedings so maybe there's a reason this opinion is nonsense. Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 21, 2017 Share Posted February 21, 2017 Well, honestly, the court outcome never seemed like a strong bet to me in the first place--courts have a way of not coming out the way you think it should, as it just did. I think Mnuchin is the reason this thing became much more compelling. He's basically the same type of guy that would hold these things, and he wants the government to get out. If he wants the government out, he needs private shareholders to be at the table. If he kills all these shareholders, then they aren't coming to the table. But maybe someone can throw out an interpretation where Mnuchin can get it out of government control, replace it with something else, and still kill the value of the companies? He could liquidate, but that doesn't seem like the language he's using. If he isn't liquidating, then there needs to be some public value to the companies for them to exist. At the risk of inflaming this thread to another 400 pages, here are couple things that Mnuchin can probably do that won't make current shareholders happy: - Stop NWS as of now, but not roll back past NWS. Yeah, this is not a quick solution and I know everyone criticized me when I suggested this as possible step. - With weak legal situation, perhaps Mnuchin can settle for sub-par conversion of prefs to common plus huge common dilution with govt position, etc.? The argument against this is that this would be "Obama/Clinton" thing to do, but why not? Yeah, his buddies are screwed... but shareholders might take scraps now that legal situation is weak. Anyway, I'm not arguing the above solutions are high probability. But IMO between this and potential Congress "input", there might be some not-so-great outcomes for shareholders. Let's ask this differently? Who still thinks that par-solution has higher than 40% probability? ultimately this depends on how mnuchin looks at it. if he says the govt has been paid back its money plus its original 10% return (which it almost has already), and the nws was instrumental in achieving this on an expedited basis, then he might go about recapping in a way that books that return and maximizes value of warrants. if mnuchin says, wait, i have to look at this situation differently, maybe wind down not only can be pursued now but should be, then he would have that option...though as pointed out earlier, where he gets any private capital from to do this is not clear to me as luke pointed out earlier, mnuchin stated in confirm hearings that he never really looked into the legal aspects of the situation. if he wasnt fibbing, then mnuchin is not really driven by the legal merits but what makes financial sense. but who knows really... Link to comment Share on other sites More sharing options...
hardincap Posted February 21, 2017 Share Posted February 21, 2017 "though the investors' leverage is diminished a whole lot" since takings case is unaffected and arguably matters most, doesnt this make no difference to how mnuchin negotiates with pref investors? Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 21, 2017 Share Posted February 21, 2017 "though the investors' leverage is diminished a whole lot" since takings case is unaffected and arguably matters most, doesnt this make no difference to how mnuchin negotiates with pref investors? correct. the takings case says, assuming the nws was authorized by HERA, it still amounts to a taking of property by govt. the takings claim does not depend upon whether or not govt had authority to do the nws edit: the takings case is stronger for pref than common, but the takings case is not just a pref claim Link to comment Share on other sites More sharing options...
rros Posted February 21, 2017 Share Posted February 21, 2017 Well, honestly, the court outcome never seemed like a strong bet to me in the first place--courts have a way of not coming out the way you think it should, as it just did. I think Mnuchin is the reason this thing became much more compelling. He's basically the same type of guy that would hold these things, and he wants the government to get out. If he wants the government out, he needs private shareholders to be at the table. If he kills all these shareholders, then they aren't coming to the table. But maybe someone can throw out an interpretation where Mnuchin can get it out of government control, replace it with something else, and still kill the value of the companies? He could liquidate, but that doesn't seem like the language he's using. If he isn't liquidating, then there needs to be some public value to the companies for them to exist. At the risk of inflaming this thread to another 400 pages, here are couple things that Mnuchin can probably do that won't make current shareholders happy: - Stop NWS as of now, but not roll back past NWS. Yeah, this is not a quick solution and I know everyone criticized me when I suggested this as possible step. - With weak legal situation, perhaps Mnuchin can settle for sub-par conversion of prefs to common plus huge common dilution with govt position, etc.? The argument against this is that this would be "Obama/Clinton" thing to do, but why not? Yeah, his buddies are screwed... but shareholders might take scraps now that legal situation is weak. Anyway, I'm not arguing the above solutions are high probability. But IMO between this and potential Congress "input", there might be some not-so-great outcomes for shareholders. Let's ask this differently? Who still thinks that par-solution has higher than 40% probability? A priority for Mnuchin is the networth of the companies reaching zero on Jan. 1st and taxpayer protection. In this respect, today's ruling only adds to that urgency. Besides this, and like Cherzeca mentioned, the ruling shouldn't influence any of Mnuchin's previous thoughts. Given his priorities, maintaining a liquid mortgage market and protecting taxpayers within the frame of a private market (Mnuchin said reform is possible only after companies are capitalized), it is conceivable he will still look for an amendment to the PSPAs reviving equity. Then, -believe it or not- the rest is noise as Congress could still work on reform. Don't lose your north. We only need a change or an announcement that equity is kosher. Then, down the road, the Jrs. could get the icing too if they succeed in claiming for damages. NOTE: the fact that the courts are saying the nws is legit doesn't mean Mnuchin will suddenly believe nationalization is the best thing after sliced bread. He may still believe Treasury got the most of it already. Link to comment Share on other sites More sharing options...
Desert_Rat Posted February 21, 2017 Share Posted February 21, 2017 Well, honestly, the court outcome never seemed like a strong bet to me in the first place--courts have a way of not coming out the way you think it should, as it just did. I think Mnuchin is the reason this thing became much more compelling. He's basically the same type of guy that would hold these things, and he wants the government to get out. If he wants the government out, he needs private shareholders to be at the table. If he kills all these shareholders, then they aren't coming to the table. But maybe someone can throw out an interpretation where Mnuchin can get it out of government control, replace it with something else, and still kill the value of the companies? He could liquidate, but that doesn't seem like the language he's using. If he isn't liquidating, then there needs to be some public value to the companies for them to exist. +1 Although Mnuchin has simply made it more compelling. I won't consider the Fed violating the 5th forever here, and not just for the precedent it would set. There's housing reform to accomplish too and if the Fed wants out, who does it expect will ignore what happened last time? Insuring and selling MBS will become substantially higher. Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted February 21, 2017 Share Posted February 21, 2017 What is the likelihood that the Supreme Court reviews this? Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 21, 2017 Share Posted February 21, 2017 What is the likelihood that the Supreme Court reviews this? Ps will ask for certiorari, and my guess is that scotus doesnt grant it. it has enough tough cases to decide Link to comment Share on other sites More sharing options...
hardincap Posted February 21, 2017 Share Posted February 21, 2017 this ruling has major hazardous implications for the financial markets, as brown states rather forcefully. would love to know how the SC decides this Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 21, 2017 Share Posted February 21, 2017 this ruling has major hazardous implications for the financial markets, as brown states rather forcefully. would love to know how the SC decides this i would too. however, i think mnuchin is not driven by the legal merits. if i am right, mnuchin may end up in the same ballpark as where he was heading before this decision. having said that, what path he takes and how much he wants to support a private market solution is hard to say. it seems like the market is pretty much agreeing with this view, since if it thought that mnuchin would change his objectives, as the market has been guessing at them, then the stocks would have been even lower Link to comment Share on other sites More sharing options...
orthopa Posted February 21, 2017 Share Posted February 21, 2017 "though the investors' leverage is diminished a whole lot" since takings case is unaffected and arguably matters most, doesnt this make no difference to how mnuchin negotiates with pref investors? This is exactly what I am thinking. This case was an after though up until 4 hours ago. Link to comment Share on other sites More sharing options...
Desert_Rat Posted February 21, 2017 Share Posted February 21, 2017 Would someone explain? 6 The class plaintiffs had also alleged that the failure of FHFA and Treasury to provide just compensation for taking private property violated the Takings Clause of the Fifth Amendment. The district court dismissed that challenge for failure to state a legally cognizable claim, Fed. R. Civ. P. 12(b)(6), and the class plaintiffs have not challenged that ruling on appeal. Link to comment Share on other sites More sharing options...
HalfMeasure Posted February 21, 2017 Share Posted February 21, 2017 In short, the most natural reading of the Recovery Act is that it permits FHFA, but does not compel it in any judicially enforceable sense, to preserve and conserve Fannie’s and Freddie’s assets and to return the Companies to private operation. Anyone else troubled by this language? Link to comment Share on other sites More sharing options...
Steve_Berk Posted February 21, 2017 Share Posted February 21, 2017 first step would be to ask for this to be heard en banc. Not sure that will happen. The dissent is pretty cutting--if that were the majority opinion, we'd be celebrating. But not sure that the DC circuit wants to get into this. I don't think the SC is going to hear this.... there isn't a split among the circuits and this was not really decided on something that is exactly a hot topic (specific jurisdictional ruling). So much for that.... I guess we're down to the takings case, and scraps from the contract claim. What is the likelihood that the Supreme Court reviews this? Ps will ask for certiorari, and my guess is that scotus doesnt grant it. it has enough tough cases to decide Link to comment Share on other sites More sharing options...
DocSnowball Posted February 21, 2017 Share Posted February 21, 2017 "though the investors' leverage is diminished a whole lot" since takings case is unaffected and arguably matters most, doesnt this make no difference to how mnuchin negotiates with pref investors? correct. the takings case says, assuming the nws was authorized by HERA, it still amounts to a taking of property by govt. the takings claim does not depend upon whether or not govt had authority to do the nws edit: the takings case is stronger for pref than common, but the takings case is not just a pref claim Thank you. That's very interesting. Surprising to me how forgiving they were that the facts and story presented by the Treasury was different from what the Mandamus documents revealed. The judgment says on Page 29 "The proof that no de facto liquidation occurred is in the pudding: non-capital-accumulating entities that continue to operate long-term, purchasing more than 11 million mortgages and issuing more than $1.5 trillion in singlefamily mortgage-backed securities over four years, are not the same thing as liquidating entities." So they state they feel no liquidation is occuring (time value of money is lost on them but never mind). They are leaving the takings judgment to the Sweeney case, correct? Does it matter then when the securities were purchased as far as takings claim goes? And what would the value of commons be from takings perspective if both companies are liquidated into a single utility? Thank you Link to comment Share on other sites More sharing options...
rros Posted February 21, 2017 Share Posted February 21, 2017 In short, the most natural reading of the Recovery Act is that it permits FHFA, but does not compel it in any judicially enforceable sense, to preserve and conserve Fannie’s and Freddie’s assets and to return the Companies to private operation. Anyone else troubled by this language? Word "may" in play. As opposed to "shall". Link to comment Share on other sites More sharing options...
Fat Pitch Posted February 21, 2017 Share Posted February 21, 2017 The political facts haven't changed. The GSEs need to be recapped or face another bailout when corporate taxes are lowered or by Jan 2018. Does Mnuchin recap using current structure and monetizing the warrants to show something for his efforts? Or does he wipe everyone out clean and start fresh and forgoing the warrants. If anything this court ruling gives him cover to cram the common with the warrants. Jr Prefs are the wild card, but seems easy to leave them alone and they get par eventually. Link to comment Share on other sites More sharing options...
Sunrider Posted February 21, 2017 Share Posted February 21, 2017 Chris/Merkhet How does all of this influence the Steele cases? It would seem to me that the Delaware corporate law cases are pretty much independent as the argument is simply that the 100% dividend is not permissible ab initio and thus power to make it so can't be created through subsequent legislation on top of the underlying state corporate law? Thanks! Link to comment Share on other sites More sharing options...
Flynnstone5 Posted February 21, 2017 Share Posted February 21, 2017 The political facts haven't changed. The GSEs need to be recapped or face another bailout when corporate taxes are lowered or by Jan 2018. Does Mnuchin recap using current structure and monetizing the warrants to show something for his efforts? Or does he wipe everyone out clean and start fresh and forgoing the warrants. If anything this court ruling gives him cover to cram the common with the warrants. Jr Prefs are the wild card, but seems easy to leave them alone and they get par eventually. This is what I'm thinking and reason I sold my 50% common position with the thought of adding to my prfd position on any further decrease. The prfd's are all friendly players and Mnuchin could make a fortune while still providing par. I also still believe that a conversion is still a strong possibility. Link to comment Share on other sites More sharing options...
Eye4Valu Posted February 21, 2017 Share Posted February 21, 2017 Be prepared for a lengthy article from Epstein. Link to comment Share on other sites More sharing options...
undervalued Posted February 21, 2017 Share Posted February 21, 2017 The political facts haven't changed. The GSEs need to be recapped or face another bailout when corporate taxes are lowered or by Jan 2018. Does Mnuchin recap using current structure and monetizing the warrants to show something for his efforts? Or does he wipe everyone out clean and start fresh and forgoing the warrants. If anything this court ruling gives him cover to cram the common with the warrants. Jr Prefs are the wild card, but seems easy to leave them alone and they get par eventually. This is what I'm thinking and reason I sold my 50% common position with the thought of adding to my prfd position on any further decrease. The prfd's are all friendly players and Mnuchin could make a fortune while still providing par. I also still believe that a conversion is still a strong possibility. Could you please remind me again on how Mnuchin could make a fortune on this? Link to comment Share on other sites More sharing options...
merkhet Posted February 21, 2017 Share Posted February 21, 2017 Just landed. Not much to add that wasn't already discussed. This weakens the Ps bargaining leverage to the extent that matters w/ Mnuchin. Common is considerably worse off than preferred in this scenario as well. Check the footnote to the liquidation preference discussion. Hard to imagine a situation where a court sees anticipatory repudiation but that the preferred shares weren't harmed in some way. Link to comment Share on other sites More sharing options...
Luke 532 Posted February 21, 2017 Share Posted February 21, 2017 Could you please remind me again on how Mnuchin could make a fortune on this? Mnuchin as Treasury, not Mnuchin personally. Link to comment Share on other sites More sharing options...
Guest cherzeca Posted February 21, 2017 Share Posted February 21, 2017 correct me if i am wrong but doesnt the treasury credit line stop at 2018? i never thought this would be a relevant issue so i forget the term of the credit line Link to comment Share on other sites More sharing options...
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