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

[Eye4Valu]

"The Ginnie model is bound to meet resistance, however. In an editorial published on Wednesday, Dec. 13, Mortgage Bankers Association (MBA) President David Stevens argued against the Ginnie model. MBA favors a system that would convert Fannie and Freddie into private utilities, and allow for other chartered GSE-like entities to buy and securitize mortgages. The MBA plan, however, has the same big-picture goals as does the DeMarco-Bright plan." -Scotsman Guide

 

So maybe David Stevens isn't the enemy?

[SnarkyPuppy]

Do we know yet whether HR 4560 is stand-alone or will be attached to another bill? I don't know enough about the process here. I didn't think something that would be attached to other legislation would need to pass committee or be voted on separately.

 

it looks like it is stand alone.  it has just been reported out of committee. still needs to be passed by house (likely) and senate (if 60 votes needed, as i think it needs, then who knows)

 

If this is true I see it as great news. Any administrative reform/4th amendment would come at Trump's request, and he would hardly sign this bill into law in that case. I can't see it passing, getting vetoed, and passing again with 2/3 happening before January 1.

 

If this bill passes and Trump does sign it....well, at that point it's likely "abandon ship" for me.

 

At much, much lower prices.    I find it absurd that nobody here is contemplated incentive structures consistent with an anti-shareholder plan. 

[Luke 532]

 

At much, much lower prices.    I find it absurd that nobody here is contemplated incentive structures consistent with an anti-shareholder plan.

 

Snarky, I'd be interested in reading the work you've done on anti-shareholder incentive structures. Thanks in advance.

[SnarkyPuppy]

http://www.valuewalk.com/2017/12/fannie-mae-foes-gse-reform/

 

Seems one potential outcome to me is bank-centric reform is passed by congress (facilitated through jumpstart extension) as referenced in the link above.  Bulls will argue that this doesn't:

 

1. Maximize the value of governments warrants

2. Solve for outstanding litigation

 

• Regarding point 1:  Maybe we're missing the true incentive structure here?  Is it possible that maximum economic benefit for the US government is truly the #1 incentive driving trump/mnuchin decision making?  Is it possible that alternative incentives are involved?   
  
  • Mnuchin worked 17 years for a "TBTF" bank and likely has large incentive to increase business for the banks.  Maybe his relationships w/ Paulson and Berkowitz are only a small segment of his broader network which could benefit from housing finance reform?   
    
  • If re-election is the #1 incentive at play, it's possible that providing economic benefits to large banks provides reciprocity in the form of fundraising for the 2020 election?
    
  • If tax reform is the #1 incentive at play (has more legacy value), it's possible that conceding value to shareholders in favor of increasing likelihood of passing tax reform is a rational move.
    

     

  [*]Regarding point 2:  lol.

 

Just trying to provide an alternative perspective here.    I think it's increasingly obvious where Congress is directionally headed.

[SnarkyPuppy]

My point is that it seems a foregone conclusion to some here that Mnuchin is pro-shareholder.

[Luke 532]

My point is that it seems a foregone conclusion to some here that Mnuchin is pro-shareholder.

 

Thank you for posting that again.  Much appreciated.

[DocSnowball]

Regarding point 2: just because NWS has been deemed legal, does not imply that liquidation can be done without just compensation, correct? That would be a whole new can of worms (liabilities) to consider, instead of the 100B plus asset for Treasury if the companies survive?

 

What I don’t get is Rs bill to tie the hands of its own administration, unless its posturing and a head fake to get what they want from the administration.

[SnarkyPuppy]

Regarding point 2: just because NWS has been deemed legal, does not imply that liquidation can be done without just compensation, correct? That would be a whole new can of worms (liabilities) to consider, instead of the 100B plus asset for Treasury if the companies survive?

 

What I don’t get is Rs bill to tie the hands of its own administration, unless its posturing and a head fake to get what they want from the administration.

 

It doesn't add up.  If there's been an agreement across Mnuchin, Corker, Henslaring-  why is he fighting so hard for this bill?

[orthopa]

Regarding point 2: just because NWS has been deemed legal, does not imply that liquidation can be done without just compensation, correct? That would be a whole new can of worms (liabilities) to consider, instead of the 100B plus asset for Treasury if the companies survive?

 

What I don’t get is Rs bill to tie the hands of its own administration, unless its posturing and a head fake to get what they want from the administration.

 

It doesn't add up.  If there's been an agreement across Mnuchin, Corker, Henslaring-  why is he fighting so hard for this bill?

 

Posturing is my guess.

 

Just for my own clarification this concern is regarding the Hensarling bill correct? Not the corker Warner bill that was rumored to be preferred shareholder friendly?

[orthopa]

I think its certainly healthy to worry about Mnuchin being pro shareholder or not but I think it would be very difficult politically, legally (ongoing Sweeney case) financially (new private capital) to hose shareholders. The Joe Light article which certainly could be fake news alluded to this.

 

I also think you cant completely discount the Paulson, Ackman, Berkowitz, Mnuchin, Corker connections. I know that may seem like a wishful thinking but I think have been validated by the Joe Light article if it isnt fake news.

 

The only thing that doesnt seem to really add up over the past couple of weeks is this Hensarling bill, time will tell I guess.

[Seahug]

 

Posted by: emily

« on: December 14, 2017, 10:36:57 AM » Insert Quote

Is it true that Ackman added another 44 million shares and now has over 14.9% ownership? 

 

Where do you get this info?

 

No. He has 44 million shares and owns less than 1% of equity assuming the 90% conversion. He also cut his stake from 115mn to current size, it appears in December when FNMA was trading at 4.

[investorG]

Corker Warner’s effort to  sell  Fannie Freddie to large banks through intermediaries. Devious way to mask the ending of Fannie and Freddie. Did we expect anything else from the two?

 

https://www.bloomberg.com/news/articles/2017-12-15/fannie-freddie-talks-focus-on-finding-rivals-for-mortgage-giants

 

given the status quo seems dead, it appears there's just 2 options, if FnF survive as we hope:  utility with regulated rates of return or added competition?  there seems to be reasonable merits and drawbacks for each idea.

[investorG]

115 million shares under Pershing Square Capital and 44 million newly acquired shares under Pershing Holdings

 

http://money.cnn.com/quote/shareholders/shareholders.html?symb=FNMA&subView=institutional

 

Where do you get your info from?

 

 

 

 

Posted by: emily

« on: December 14, 2017, 10:36:57 AM » Insert Quote

Is it true that Ackman added another 44 million shares and now has over 14.9% ownership? 

 

Where do you get this info?

 

No. He has 44 million shares and owns less than 1% of equity assuming the 90% conversion. He also cut his stake from 115mn to current size, it appears in December when FNMA was trading at 4.

 

that information could be stale, but most likely the 44mm shares is a subset of the 115mm;  44mm owned in the long term publicly traded investment vehicle and the rest in his traditional private hedge fund.

[Midas79]

115 million shares under Pershing Square Capital and 44 million newly acquired shares under Pershing Holdings

 

http://money.cnn.com/quote/shareholders/shareholders.html?symb=FNMA&subView=institutional

 

Where do you get your info from?

 

 

 

 

Posted by: emily

« on: December 14, 2017, 10:36:57 AM » Insert Quote

Is it true that Ackman added another 44 million shares and now has over 14.9% ownership? 

 

Where do you get this info?

 

No. He has 44 million shares and owns less than 1% of equity assuming the 90% conversion. He also cut his stake from 115mn to current size, it appears in December when FNMA was trading at 4.

 

that information could be stale, but most likely the 44mm shares is a subset of the 115mm;  44mm owned in the long term publicly traded investment vehicle and the rest in his traditional private hedge fund.

 

I also thought there was a reason Ackman didn't go over 10%, either a poison pill or some regulation.

[orthopa]

Corker Warner’s effort to  sell  Fannie Freddie to large banks through intermediaries. Devious way to mask the ending of Fannie and Freddie. Did we expect anything else from the two?

 

https://www.bloomberg.com/news/articles/2017-12-15/fannie-freddie-talks-focus-on-finding-rivals-for-mortgage-giants

 

FWIW no mention of them getting rid of fannie and freddie. Keeping them owned by gov not a great mention. Goes totally against Mnuchins out of govt control and ownership.

 

Hensarlings bill looks like posturing and a smoke show. Put up a big stand, preserve your legacy, yada yada. The Corker Warner bill seems to be the more realistic attempt to actually move forward in some fashion.

[Midas79]

In the past I have commented on the R^2 value of the linear regression using dividend yields of the junior prefs to predict their price as a percentage of par. I found a pretty serious error in my spreadsheet so I feel I should give an update.

 

I had reported R^2 values around 0.55 before, implying that the market wasn't taking the dividend yield seriously and thought that there was a relatively low chance that dividends would be turned back on. After correcting the error the value jumps to 0.87 as of right now.

 

I left FNMAS and FMCKJ out of the regression so that it should only account for dividend yields and not liquidity. The series I am using are FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCCT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO. I have not accounted for a potential market preference for Fannie vs Freddie prefs (or vice versa), but their relative strength tends to go back and forth (right now Freddie prefs are strong vis a vis Fannie's) so I lump them together. I have a small personal preference for Fannie given the language in the circulars about a 2/3 vote needed for a forced conversion to common, while that language is absent in Freddie's.

 

This R^2 value of 0.87 is still somewhat low compared to the last year, when it would normally be in the 0.9-0.92 range. Still, my premise that the market doesn't care much about dividend yield is flawed. I doubt we would see correlation this strong if the market thought dividends would not be turned on for a long time if ever.

[investorG]

It looks like stage is set for admin action. They are just gearing up to prevent admin action, all noise. Nothing was done in last 9 years, same actors and all talk, going in circles. If it was someone else with a bill, may be. Corker thinks that partnering with Warner is giving an impression of a bipartisan bill. Nope. It is a bipartisan bill in the sense it is a bill for large banks versus taxpayers (interesting how they talk about taxpayers as it looks good but there is nothing good about taxpayers). Corker Warner name on a bill is a no no, will be vetoed even it does. Also HR4560 will die in senate as they need 60 votes and most democrats oppose it. I agree with you all it was posturing, especially from Duffy, who made Maxine utter the word recap.

 

 

Corker Warner’s effort to  sell  Fannie Freddie to large banks through intermediaries. Devious way to mask the ending of Fannie and Freddie. Did we expect anything else from the two?

 

https://www.bloomberg.com/news/articles/2017-12-15/fannie-freddie-talks-focus-on-finding-rivals-for-mortgage-giants

 

FWIW no mention of them getting rid of fannie and freddie. Keeping them owned by gov not a great mention. Goes totally against Mnuchins out of govt control and ownership.

 

Hensarlings bill looks like posturing and a smoke show. Put up a big stand, preserve your legacy, yada yada. The Corker Warner bill seems to be the more realistic attempt to actually move forward in some fashion.

 

I suspect you may be disappointed.  if we put ourselves in mnuchin's shoes, what's the upside for aggressive administrative action early on?  I don't see much.

 

rather, the best we can hope for imo is that mnuchin engages with congress in a balanced manner that supports all constituencies, including ours.  and also can ask santa for a 4th amendment in 1q 2018 if for some unlikely chance re-jumpstart fails.

[Midas79]

I suspect you may be disappointed.  if we put ourselves in mnuchin's shoes, what's the upside for aggressive administrative action early on?  I don't see much.

 

rather, the best we can hope for imo is that mnuchin engages with congress in a balanced manner that supports all constituencies, including ours.  and also can ask santa for a 4th amendment in 1q 2018 if for some unlikely chance re-jumpstart fails.

 

"Early on" was a year ago. Given that Congress has gone 9 years without addressing the issue, how much longer is Mnuchin expected to wait? I can see him making one concerted push to get something through Congress, but if it falls apart, especially since it only takes 2 Senate Rs to vote a bill down, he would need to act administratively to ensure that anything at all gets done before the midterms.

[orthopa]

In the past I have commented on the R^2 value of the linear regression using dividend yields of the junior prefs to predict their price as a percentage of par. I found a pretty serious error in my spreadsheet so I feel I should give an update.

 

I had reported R^2 values around 0.55 before, implying that the market wasn't taking the dividend yield seriously and thought that there was a relatively low chance that dividends would be turned back on. After correcting the error the value jumps to 0.87 as of right now.

 

I left FNMAS and FMCKJ out of the regression so that it should only account for dividend yields and not liquidity. The series I am using are FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCCT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO. I have not accounted for a potential market preference for Fannie vs Freddie prefs (or vice versa), but their relative strength tends to go back and forth (right now Freddie prefs are strong vis a vis Fannie's) so I lump them together. I have a small personal preference for Fannie given the language in the circulars about a 2/3 vote needed for a forced conversion to common, while that language is absent in Freddie's.

 

This R^2 value of 0.87 is still somewhat low compared to the last year, when it would normally be in the 0.9-0.92 range. Still, my premise that the market doesn't care much about dividend yield is flawed. I doubt we would see correlation this strong if the market thought dividends would not be turned on for a long time if ever.

 

Agree but what is odd is that market only believes ~20-25% chance that preferred will get par...but is respecting dividends? The market seems to be putting the cart before the horse here.

[DocSnowball]

Waiting to see the bill now, enough rumors. The title of the article is different now

 

https://www.bloomberg.com/news/articles/2017-12-15/fannie-freddie-talks-focus-on-finding-rivals-for-mortgage-giants

 

“Fannie-Freddie Talks Set Competition as the Cost of Freedom“

 

Also, now relook at the last FMCC earnings call,which I posted at that time, quoting CEO Don Layton, how he is positioning FMCC going forward

 

“First, I will address overall corporate financial and operating results, they were excellent on several levels. Second, I will get into the individual lines of business. Behind the specifics of each, you will hear the recurring theme of business transformation, a big part of which is going from the not-very-competitive past to the very-competitive present, where we compete as if there were 3 or 5 or 8 GSEs not just 2.”

[Luke 532]

Tax bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

[doughishere]

Tax bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

 

am i correct in saying that the bull case for the prefs now is that because of this tax bill the DTAs are worth less and thus they will have to take a write down and thus this will force trump/mnuchin to act to "set them free"?

[Luke 532]

Tax bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

 

am i correct in saying that the bull case for the prefs now is that because of this tax bill the DTAs are worth less and thus they will have to take a write down and thus this will force trump/mnuchin to act to "set them free"?

 

There is a ton more reason behind the bull case for prefs, but the direct and immediate impact of tax reform is that it forces Mnuchin/Watt to address the capital buffer issue with actions and not merely words (paraphrased... Watt: "dangerous to have no capital buffer."  Mnuchin: "No more bailouts.  GSE's won't be killed, aren't going anywhere.").  Don't mistake that with being the entirety of the bull case for prefs.

[SnarkyPuppy]

Tax bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

 

am i correct in saying that the bull case for the prefs now is that because of this tax bill the DTAs are worth less and thus they will have to take a write down and thus this will force trump/mnuchin to act to "set them free"?

 

IMO-  There will be a small capital buffer put in place w/ strong language towards no recap/release.  Will be a non event.

 

Could argue though that one of Mnuchin's legacy bills (tax reform) has its votes leading him to be more candid now.  Think we all should have learned to expect the most conservative outcome by now.

[racemize]

Tax bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

 

am i correct in saying that the bull case for the prefs now is that because of this tax bill the DTAs are worth less and thus they will have to take a write down and thus this will force trump/mnuchin to act to "set them free"?

 

tax bill should increase the future value of Fannie Mae->better value for unlocking the warrants, from governments point of view.