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

[investorG]

imo he demonstrated much greater command and confidence which is good.  short term money should get out but longer term money in.

 

 

[investorG]

did the comment on fox news throwing the court issues over to DOJ suggest that Sessions can decide to change course if he doesn't believe in what the DOJ is fighting for (maybe the 12k documents are shady)?  not in the perry case as much where the courts have said the fhfa can do whatever it wants but in some of the other courts?  mnuchin made it seem like he and treasury are just along for the ride in the courts.

 

thank you

[Cardboard]

"For those in congress against gse's, what are the "must haves" vs. the areas that they would be willing to give on?"

 

Good question but, their biggest worry is getting re-elected. So it is all about optics. And how many in the electorate know Fannie and Freddie, what they do and the issues?

 

Blocking everything is certainly not seen as a positive and making a sweet deal for the rich neither. So it has to be some form of compromise. So favour home ownership for all by keeping GSE's strong, regulate them tightly to avoid future taxpayers risk and strike a deal with investors that is fair or meeting American tradition.

 

Cardboard

[Flynnstone5]

My concern is we're back to the litigation crawl and if a plan isn't going to happen until August at the earliest, the companies will have virtually zero capital by that time. Does anyone see any litigation effort moving fast enough to force a change sooner - doesn't seem very likely.

 

Does he stop the NWS soon or does he just figure let Treasury keep taking the money until a plan is established? It feels like we're almost back to square one. What leverage do we have - even in the interview the narrative is that court cases were lost, nothing about what was remanded.

[rros]

What's his incentive to be shy at this point?

He has 3 former OneWest guys that he needs to get confirmed.

[Sunrider]

It seems to be me that he basically changed the topic on the GSE question? The little he did say is basically just "Nothing will happen soon."

[investorG]

My concern is we're back to the litigation crawl and if a plan isn't going to happen until August at the earliest, the companies will have virtually zero capital by that time. Does anyone see any litigation effort moving fast enough to force a change sooner - doesn't seem very likely.

 

Does he stop the NWS soon or does he just figure let Treasury keep taking the money until a plan is established? It feels like we're almost back to square one. What leverage do we have - even in the interview the narrative is that court cases were lost, nothing about what was remanded.

 

i would not get your hopes up for any short term news positives.  fast traders might want to exit.  the sr preferred can't be touched til 2018 so the best case for 2017 is likely a stop in the sweep imo.

 

but if you're a long term investor, those who don't care whether it takes 1 or 2 years, with the market at its highs, wouldn't you want to take a look here given the current valuations?  court case optimism is quite low (unlike prior to tuesday when the prospect of a 35pct 1-day drop scared people) and mnuchin sounded today like a man who knew what he was doing.

[Desert_Rat]

Highlight of Mnuchin interviews:  http://finance.yahoo.com/video/mnuchin-ive-practicing-signature-us-131200339.html

[Guest cherzeca]

missed the shows but thanks for the reports

 

i think mnuchin understands the position he is in.  he comes from a background where shareholder rights are esteemed, but he is now in a situation where politics must be adhered to.  that means go through the process of consulting with congress, and forming a team at treasury that will look at every option.  goldman guys are very much about process, even if you end up where you were at the beginning.

 

having said that, i dont think he wants a gse draw while he is secretary.  given profitability of gses, that would only happen if there is tax reform.  so i think in munchin's mind, there is no reason to rush gse plan out before tax reform, but it should be ready to go when tax reform is presented.  gses are in a reasonably profitability steady state now, no reason to precipitous, but current state is not the end state.

 

what i have been thinking of is the question of whether when Ps appeal perry, doj under sessions might argue differently than the obama doj that we have seen in this case.  there is no reason why cooper cant pick up the phone and tell sessions what he thinks, and given coopper's friendship with sessions, cooper has that access.  whether any of this sessions wants to get involved in is another matter.  the doj guys that have handling this matter are still there, and inertia is the greatest force in the universe.

[PLynchJr]

Mnuchin is becoming quite the politician already.  He said basically nothing of substance.  Both sides can interpret his words to favor their side of the solution.

[rros]

Highlight of Mnuchin interviews:  http://finance.yahoo.com/video/mnuchin-ive-practicing-signature-us-131200339.html

This was expected. Just like Hank Paulson said nothing before the take over, Geithner said nothing before the 3rd A and Jack Lew said nothing, ever. The important facts are: he met with Watt and Hersanling and assigned a team to work on issues. This is different than previous Administration laying it on top of Congress. Mnuchin continues to be consistent in his views that 8 years is a little too much to wait for reform. Unfortunately, all we have to go by is what he said before he was confirmed. Next move will come when we least expect it. I imagine it will be fine for equity.

[TonyG]

cherzeca, how would they argue differently? as in what would they say if they did argue differently?

[Flynnstone5]

cherzeca, how would they argue differently? as in what would they say if they did argue differently?

 

also @cherzeca - any idea regarding time frame as to when one would expect an appeal, en banc or whatever the way forward may be legally speaking?

[Guest cherzeca]

cherzeca, how would they argue differently? as in what would they say if they did argue differently?

 

i dont know.  fhfa is there to argue however it wants, as it is an independent agency. so if doj wanted to, it could scale back its defense in a way that was closer to the brown opinion, and let the en banc court or soctus decide for itself.  because fhfa can argue strongly in support of majority, this may give doj a little more freedom to say, hey we're new here, and this is what we think.

 

not saying that this will happen at all, just saying that i) it is possible, and ii) cooper has the access to sessions to make that push if he wants to.  after all, the sessions doj clearly signed off on the new transgender bathroom policy, and that was a 180 turn from obama doj view.

 

edit:  for example, i think it was re the defense of marriage act that obama doj said, we are not defending this statute in front of scotus.  maybe merkhet remembers this or other situations where change in doj effected change in argument

[Cardboard]

"This was expected. Just like Hank Paulson said nothing before the take over, Geithner said nothing before the 3rd A and Jack Lew said nothing, ever. The important facts are: he met Watt and Hersanling and assigned a team to work on issues. This is different than previous Administration laying it on top of Congress. Mnuchin continues to be consistent in his views that 8 years is a little too much to wait for reform. Unfortunately, all we have to go by is what he said before he was confirmed. Next move will come when we least expect it. I imagine it will be fine for equity."

 

+1

 

 

[investorG]

many of us are focused on the weeds but put yourself in a big portfolio manager's shoes looking at the forest.

 

mnuchin seems in control, which is crucial.

 

fnma has 1.1bn shares.  5.5bn with full warrants.  if 20bn of jr preferred is exchanged @ 2:1 ratio (for 25-pars, 4:1 for 50) that's another ~1.6bn shares (20bn / 25 par x 2) = 7bn shares x 3 = $21bn / ~ 10bn earnings = 2x P/E ratio. 

 

there are lots of negatives you can throw on like timing, additional capital to be raised, deal execution risks, future earnings stream uncertainty, and many more.  but 2x can absorb a lot of bad news, and that assumes full warrants exercise for free. 

 

while my eyes are open that any scenario could occur, based on all that I see the securities represent excellent value.

 

 

[investorG]

Mnuchin is becoming quite the politician already.  He said basically nothing of substance.  Both sides can interpret his words to favor their side of the solution.

 

if you are anti-GSE what did you hear that excites you besides nothing is imminent?  not trying to be difficult, just curious.  thank you

[Midas79]

Not sure how to embed tweets, but I saw a good one in response to Mnuchin's GSE comments on Fox Business this morning:

 

TrainReckt‏@FNMA2008 2h2 hours ago

@JaredALevine liquidity, liquidity, liquidity... you know what isn't guaranteed by the #TBTF banks? Liquidity! It doesn't exist w/o the GSEs

 

To me that's just more reinforcement that Mnuchin has taken a wind-down off the table. I wonder if we'll see pages like this one: (headline: Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac)

 

https://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx

 

disappear from the Treasury website or get buried? If so I think it will be a telling sign.

[SnarkyPuppy]

Stunned at the fact that some on this board are bullish from today's interviews.  Seems clear to me that there won't be anything done until after tax reform is implemented -> DTAs will take a hit -> GSEs will require another draw.  Seems like he has bigger things on his mind.

 

This has become an investment based on reading between the lines of what one man says, I'm strongly considering selling the majority of my position right now but need to think through this a little bit more.

 

Also, wasn't Henslaring an enemy 4 months ago?  Suddenly it's bullish that Mnuchin is discussing GSE reform with him?

[TwoCitiesCapital]

many of us are focused on the weeds but put yourself in a big portfolio manager's shoes looking at the forest.

 

mnuchin seems in control, which is crucial.

 

fnma has 1.1bn shares.  5.5bn with full warrants.  if 20bn of jr preferred is exchanged @ 2:1 ratio (for 25-pars, 4:1 for 50) that's another ~1.6bn shares (20bn / 25 par x 2) = 7bn shares x 3 = $21bn / ~ 10bn earnings = 2x P/E ratio. 

 

there are lots of negatives you can throw on like timing, additional capital to be raised, deal execution risks, future earnings stream uncertainty, and many more.  but 2x can absorb a lot of bad news, and that assumes full warrants exercise for free. 

 

while my eyes are open that any scenario could occur, based on all that I see the securities represent excellent value.

 

I think 2:1 is a pretty low ratio for what most preferred shareholders would expect. Obviously, it's going to depend on where the common trades, but as of right now, I wouldn't be happy with anything less than 7-10:1.

 

Could be willing to go lower if much of the uncertainty regarding their future, court rulings, and recap are ruled out, but that would also result in a higher common $ which makes a lower conversion ratio make sense.

[investorG]

many of us are focused on the weeds but put yourself in a big portfolio manager's shoes looking at the forest.

 

mnuchin seems in control, which is crucial.

 

fnma has 1.1bn shares.  5.5bn with full warrants.  if 20bn of jr preferred is exchanged @ 2:1 ratio (for 25-pars, 4:1 for 50) that's another ~1.6bn shares (20bn / 25 par x 2) = 7bn shares x 3 = $21bn / ~ 10bn earnings = 2x P/E ratio. 

 

there are lots of negatives you can throw on like timing, additional capital to be raised, deal execution risks, future earnings stream uncertainty, and many more.  but 2x can absorb a lot of bad news, and that assumes full warrants exercise for free. 

 

while my eyes are open that any scenario could occur, based on all that I see the securities represent excellent value.

 

I think 2:1 is a pretty low ratio for what most preferred shareholders would expect. Obviously, it's going to depend on where the common trades, but as of right now, I wouldn't be happy with anything less than 7-10:1.

 

Could be willing to go lower if much of the uncertainty regarding their future, court rulings, and recap are ruled out, but that would also result in a higher common $ which makes a lower conversion ratio make sense.

 

the preferreds lost relative advantage this week imo (outside of future positive court rulings).  their negotiating leverage declined and the odds of the warrants being exercised are higher meaning preferreds are fighting more against trump / taxpayer in dividing the equity.  but clearly the 2:1 ratio I used would be further down the line and any potential progress would be reflected in the common price, hopefully, relative to where it is today.

 

and fwiw 1/3 of my position (currently, it changes often) is in preferred, so i'm not against preferreds.

[investorG]

Stunned at the fact that some on this board are bullish from today's interviews.  Seems clear to me that there won't be anything done until after tax reform is implemented -> DTAs will take a hit -> GSEs will require another draw.  Seems like he has bigger things on his mind.

 

This has become an investment based on reading between the lines of what one man says, I'm strongly considering selling the majority of my position right now but need to think through this a little bit more.

 

Also, wasn't Henslaring an enemy 4 months ago?  Suddenly it's bullish that Mnuchin is discussing GSE reform with him?

 

fwiw it's not that he said anything bullish or new today.  for me, it's that he presented himself with competence and confidence (I did not feel this during the confirmation hearing) which is offset by the timing disappointment.  which leads back to the value, which outlined earlier, is there to me.

[Picasso]

Stunned at the fact that some on this board are bullish from today's interviews.  Seems clear to me that there won't be anything done until after tax reform is implemented -> DTAs will take a hit -> GSEs will require another draw.  Seems like he has bigger things on his mind.

 

This has become an investment based on reading between the lines of what one man says, I'm strongly considering selling the majority of my position right now but need to think through this a little bit more.

 

Also, wasn't Henslaring an enemy 4 months ago?  Suddenly it's bullish that Mnuchin is discussing GSE reform with him?

 

No position but in agreement with this.  It starts getting speculative when you have to read between the lines and analyze tones.  If Trump had not won (a seemingly improbable event), I can't imagine these securities would be trading anywhere near current market prices.

[BeerBBQ]

the preferreds lost relative advantage this week imo (outside of future positive court rulings).  their negotiating leverage declined and the odds of the warrants being exercised are higher meaning preferreds are fighting more against trump / taxpayer in dividing the equity.  but clearly the 2:1 ratio I used would be further down the line and any potential progress would be reflected in the common price, hopefully, relative to where it is today.

 

and fwiw 1/3 of my position (currently, it changes often) is in preferred, so i'm not against preferreds.

 

Could you please expand on why you think the preferred lost relative advantage and why you think the preferreds negotiating leverage diminished? 

[PLynchJr]

Mnuchin is becoming quite the politician already.  He said basically nothing of substance.  Both sides can interpret his words to favor their side of the solution.

 

if you are anti-GSE what did you hear that excites you besides nothing is imminent?  not trying to be difficult, just curious.  thank you

 

I am not anti-GSE.  I own the common.  Basically the usual can't go on like this....need housing reform...bipartisan...etc.    You can read that a lot of ways.  He gave no specifics.  He said nothing directly to give the current shareholders support.  No mention of ending the NWS.  Everyone is trying to squeeze meaning out of the very vague comments he made.  Just trying to be realistic.  A bit disappointed with what he said today.  I don't feel any better or worse about the position after the interview.