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

[undervalued]

This video has Mnuchin speaking longer than the CNBC https://www.bloomberg.com/politics/videos/2017-04-20/mnuchin-says-major-tax-reform-is-close-video

[beaufort]

https://www.streetinsider.com/Analyst+Comments/Rafferty+Capitals+Bove+Notes+Potential+Game+Changer+for+Fannie+Mae+%28FNMA%29/12800715.html

 

I was thinking about this new hire as well.  I am not familiar with her reputation. 

 

Unrelated to the bill, Bove also highlighted that Celeste Brown has left her position as Treasurer of Morgan Stanley to become Deputy CFO at Fannie Mae. Commenting on why a rising star at Morgan Stanley would leave to join a company on the verge of being eliminated, he said: "My belief is that she would not do this unless she were given assurances that there was a bright future for her at Fannie Mae. Ms. Brown is special. She is unlikely to sidetrack her career to become a government employee dead set in the middle of “the swamp.”

[muscleman]

https://www.streetinsider.com/Analyst+Comments/Rafferty+Capitals+Bove+Notes+Potential+Game+Changer+for+Fannie+Mae+%28FNMA%29/12800715.html

 

I was thinking about this new hire as well.  I am not familiar with her reputation. 

 

Unrelated to the bill, Bove also highlighted that Celeste Brown has left her position as Treasurer of Morgan Stanley to become Deputy CFO at Fannie Mae. Commenting on why a rising star at Morgan Stanley would leave to join a company on the verge of being eliminated, he said: "My belief is that she would not do this unless she were given assurances that there was a bright future for her at Fannie Mae. Ms. Brown is special. She is unlikely to sidetrack her career to become a government employee dead set in the middle of “the swamp.”

 

Sad that Jason Chaffetz is resigning. He seems to be one of the few guys who have guts to fight against corruption.

[undervalued]

https://www.bloomberg.com/news/articles/2017-04-21/fannie-freddie-overhaul-is-very-important-goal-mnuchin-says?utm_source=yahoo&utm_medium=bd&utm_campaign=hosted&cmpId=yhoo.hosted

[Luke 532]

Interesting that Senators might want to do GSE reform before Dodd-Frank...

 

Q    Mr. Secretary, in Congress it seems like in the Senate they want to do GSE reform before Dodd-Frank reform.  Is that order you would support?  And what do you think is the biggest holdup to getting a GSE deal?

https://www.whitehouse.gov/the-press-office/2017/04/21/press-briefing-secretary-treasury-steve-mnuchin-financial-services

 

[Luke 532]

House Rules Committee meets on Tuesday regarding the Fannie/Freddie Open Records Act (attached).

 

And here's the link to follow the billl: https://www.congress.gov/bill/115th-congress/house-bill/1694/cosponsors?q=%7B%22search%22%3A%5B%22hr+1694%22%5D%7D&r=1

[muscleman]

House Rules Committee meets on Tuesday regarding the Fannie/Freddie Open Records Act (attached).

 

And here's the link to follow the billl: https://www.congress.gov/bill/115th-congress/house-bill/1694/cosponsors?q=%7B%22search%22%3A%5B%22hr+1694%22%5D%7D&r=1

 

 

Yeah.....

I am sure the GOP wants to see what Obama has been stone walling for so many years.

Unfortunately Bob Corker and his gangs will try to block this so his own dirty dealings won't be seen.

 

I hope this bill could pass.

 

 

 

[investorG]

question regarding the court case timing:

 

perry and Sweeney seem 2018+

 

the Cincinnati and st louis appeals courts, along with hindes in Delaware seem like 2h 2017 possible rulings.

 

what about Collins in texas -- both the fhfa constitutionality part and also the standard nws illegality request --- could either one of those or both come at any point?

[rros]

question regarding the court case timing:

 

perry and Sweeney seem 2018+

 

the Cincinnati and st louis appeals courts, along with hindes in Delaware seem like 2h 2017 possible rulings.

 

what about Collins in texas -- both the fhfa constitutionality part and also the standard nws illegality request --- could either one of those or both come at any point?

The way it seems to go is that rulings have already been reached in all cases. But they are only being released as share prices become too frothy. Once prices reach unsustainable levels of speculation someone calls the courts and they drop the ax. So there you have the schedule: pay attention to share prices. And yes, I am assuming all courts are against us.

[DocSnowball]

Didn't Mnuchin state in that briefing exactly what he did on TV on day 1? And ruled out two ways to zero - status quo and nationalization. One way to zero still would be spin offs without anything to existing shareholders if courts permit? Otherwise it would be a question of how much which shares get diluted?

@rros not sure what your advice meant, I'm thinking of half position now and half after "reform". What did you mean by accumulate before the cold water splash?

[SnarkyPuppy]

 

25:47

[SnarkyPuppy]

At this point, I think it's fairly obvious one of two things are going to happen (assuming the legal side of things continues to yield negative results):

 

1.  Recapitalize & release the GSE's as is, but with capital requirements much greater than in the past.  In this scenario, two likely outcomes:

• Preferreds trade at par +/- dividend yield, less time value for recapitalization period, or
  
• Preferreds are converted into common shares at favorable multiples (ala Citi deal)

or

 

2.  GSE reform occurs whereby the government guarantee becomes explicit (supported by an FDIC-like federal insurance fund), with provisions to allow FHFA to charter new guarantors/competition (as proposed by Mortgage Banks Association).  Fannie and Freddie released under new charters - two likely outcomes:

• Rechartered FNMA/FMCC where legal structure is maintained.  FNMA and FMCC re-emerge with some mix of capital requirements -> recapitalization, credit risk transfer, a 'federal insurance fund', and additional guarantors entered into the market for competition (all consistent with MBA's proposals - https://www.mba.org/Documents/Policy/17305_MBA_GSE_Reform_Paper.pdf).  Preferreds trade at par +/- dividend yield, less time value for recap/reform period or Preferreds are converted into common shares at favorable multiples (ala Citi deal).
  
• Rechartered successors to FNMA/FMCC (language used in the MBA proposal) are established as new legal entities.  Current capital structure is wiped out and a new set of GSE's emerge.  This is the likely downside scenario.  Also, in this scenario, there remains a potential decision by the government to respect the Preferreds liquidation preference in order to effect a clean break from conservatorship (i.e. end litigation).  There are $33bn junior preferred outstanding at par.
  

 

I believe the above options are all consistent with Mnuchin's statements and statements made by other individuals within the government who have spoken directly about the GSE's. 

 

[DocSnowball]

What would benefit treasury the most in the short run(1-4 years)?

[beaufort]

Re Snarky's scenarios:

 

I don't see what the benefit is of wiping out the existing shareholders, both common and preferred, by spinning off the assets to a new corporation.  Why spin off the assets to a new entity and have to deal with the ensuing fraudulent conveyance actions?

 

I can see a situation where there is significant dilution of the common.  I can see the issuance of new prefs. 

 

I also see the new charters as a way of appealing to the politicians that want to bring about the destructions of Fannie and Freddie.  I hope there would be no compromise by giving the new entities propriety processes/technologies for nothing. 

 

New charters for competitors ("private capital" - unlike the capital on this board) and recapped Fannie and Freddie seem like a compromise that all could live with.  It also seems to be shaping up that way in the proposals being put forward.

 

 

 

 

 

 

[rros]

Didn't Mnuchin state in that briefing exactly what he did on TV on day 1? And ruled out two ways to zero - status quo and nationalization. One way to zero still would be spin offs without anything to existing shareholders if courts permit? Otherwise it would be a question of how much which shares get diluted?

@rros not sure what your advice meant, I'm thinking of half position now and half after "reform". What did you mean by accumulate before the cold water splash?

For those of us who have been on this trade for years we have learned that when things seem to be going well -reflected on a high priced stock- the time comes when some really bad news is thrown unto us: Lamberth ruling, Appeals ruling or Treasury/FHFA/WH press releases debunking rumors. We have gone through 3 big cold water splashes and numerous smaller ones. But this was intended as half a joke.

 

Your one way to zero is not to be disregarded. Administration/FHFA could force receivership to wipe out equity before moving into a new scheme where new equity is raised. However, there are a few issues with this. Wiping out legacy after what we have gone through could send the wrong message to new investors. Or it could also reinforce the notion of no bailouts to anyone pointing at moral hazard. Another thing to consider is that many voices in the current administration (Calabria, Mulvaney) have stated the government has been paid back. If all this drags into 2018 there is a chance Trump may simply eliminate the Sr. preferred shares (hopefully Corker fails to extend Jumpstart). In which case, a receivership may grant full value to the Jr. shares. Or what Snarky has already stated.

 

Remember, Calabria is big on receivership and he both understands and believes in the process. I would not be surprised he will try to see this working in an actual scenario. But I also believe the chance to see value re liquidation preference of the Jrs. is very high. Provided the Srs. get the boot before.

[Desert_Rat]

question regarding the court case timing:

 

perry and Sweeney seem 2018+

 

the Cincinnati and st louis appeals courts, along with hindes in Delaware seem like 2h 2017 possible rulings.

 

what about Collins in texas -- both the fhfa constitutionality part and also the standard nws illegality request --- could either one of those or both come at any point?

The way it seems to go is that rulings have already been reached in all cases. But they are only being released as share prices become too frothy. Once prices reach unsustainable levels of speculation someone calls the courts and they drop the ax. So there you have the schedule: pay attention to share prices. And yes, I am assuming all courts are against us.

 

That may be the most pragmatic+pessimistic (is there a word there?) thing I've ever read!

[Desert_Rat]

Didn't Mnuchin state in that briefing exactly what he did on TV on day 1? And ruled out two ways to zero - status quo and nationalization. One way to zero still would be spin offs without anything to existing shareholders if courts permit? Otherwise it would be a question of how much which shares get diluted?

@rros not sure what your advice meant, I'm thinking of half position now and half after "reform". What did you mean by accumulate before the cold water splash?

For those of us who have been on this trade for years we have learned that when things seem to be going well -reflected on a high priced stock- the time comes when some really bad news is thrown unto us: Lamberth ruling, Appeals ruling or Treasury/FHFA/WH press releases debunking rumors. We have gone through 3 big cold water splashes and numerous smaller ones. But this was intended as half a joke.

 

Your one way to zero is not to be disregarded. Administration/FHFA could force receivership to wipe out equity before moving into a new scheme where new equity is raised. However, there are a few issues with this. Wiping out legacy after what we have gone through could send the wrong message to new investors. Or it could also reinforce the notion of no bailouts to anyone pointing at moral hazard. Another thing to consider is that many voices in the current administration (Calabria, Mulvaney) have stated the government has been paid back. If all this drags into 2018 there is a chance Trump may simply eliminate the Sr. preferred shares (hopefully Corker fails to extend Jumpstart). In which case, a receivership may grant full value to the Jr. shares. Or what Snarky has already stated.

 

Remember, Calabria is big on receivership and he both understands and believes in the process. I would not be surprised he will try to see this working in an actual scenario. But I also believe the chance to see value re liquidation preference of the Jrs. is very high. Provided the Srs. get the boot before.

 

Two things:

 

1) The courts have let us down, alone. The bias and political support are looking up. This is the better thing, imo, because the courts have never  been keen on cleaning up this mess. The politicians had a point, in that they were protecting our way of life. That they were 100% wrong that this country wouldn't right itself naturally is not their fault, and the courts will forever respect that.

 

2) I am so sick and tired about the 'protect taxpayers' statements. No matter how much capital, no matter how keenly planned, if the shit hits the fan, like it did just 8 years ago, TBTF (like FnF) will be covered by the same treasury that has been propping up asset prices since we were seized by them. It's such a stupid, retarded, moronic, demand of progress.

 

[Desert_Rat]

https://twitter.com/tracyalloway/status/856030819906977792/photo/1

[TonyG]

https://assets.pershingsquareholdings.com/media/2014/09/24092735/2017-Annual-European-Investor-Presentation-FINAL.pdf

 

ackman thinks trump admin. will work with congress to reform fannie and freddie.

[Luke 532]

I'd be happy with the ICBA proposal: http://www.icba.org/news-events/press-releases/2017/04/25/icba-white-paper-lays-out-principles-for-housing-finance-reform

 

The attached image is a highlight of the proposal.

[investorG]

I'd be happy with the ICBA proposal: http://www.icba.org/news-events/press-releases/2017/04/25/icba-white-paper-lays-out-principles-for-housing-finance-reform

 

The attached image is a highlight of the proposal.

 

nice proposal, thank you icba. 

 

confused on the warrants into sr preferred comment in your pasted attachment -- was it a typo?

[Luke 532]

I'd be happy with the ICBA proposal: http://www.icba.org/news-events/press-releases/2017/04/25/icba-white-paper-lays-out-principles-for-housing-finance-reform

 

The attached image is a highlight of the proposal.

 

nice proposal, thank you icba. 

 

confused on the warrants into sr preferred comment in your pasted attachment -- was it a typo?

 

Yes, I believe it was.  The warrants are for common stock.

[Desert_Rat]

I'd be happy with the ICBA proposal: http://www.icba.org/news-events/press-releases/2017/04/25/icba-white-paper-lays-out-principles-for-housing-finance-reform

 

The attached image is a highlight of the proposal.

 

I like its idea on equity resolution but not its convolution of an operation that has been highly successful as is. Isn't "catastrophic mortgage insurance fund" pretty much what AIG offered? and it would be another layer on top of g-fees that will increase the cost of financing, while adding only pretty optics because if shit hits fan govt is covering losses anyway.

 

It's not necessary. Govt has one of two choices: Stick with what's worked or increase the cost of home financing. Personally, I favor the latter but America won't.

 

[Desert_Rat]

I'd be happy with the ICBA proposal: http://www.icba.org/news-events/press-releases/2017/04/25/icba-white-paper-lays-out-principles-for-housing-finance-reform

 

The attached image is a highlight of the proposal.

 

nice proposal, thank you icba. 

 

confused on the warrants into sr preferred comment in your pasted attachment -- was it a typo?

 

Yes, I believe it was.  The warrants are for common stock.

 

I think:  "The Treasury should exercise its warrants for AND senior preferred shares of GSE stock and convert those shares to stock in the new structure"

[Midas79]

I think:  "The Treasury should exercise its warrants for AND senior preferred shares of GSE stock and convert those shares to stock in the new structure"

 

This could be a huge negative in disguise. If Treasury (or Congress) insists that the senior preferreds are still outstanding in their full amount (i.e. no reduction in principal even after all dividend payments) then it's possible there is only a tiny percentage of the capital structure left for current shareholders.

 

I don't see this as likely, but it's one possible interpretation.