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

[SnarkyPuppy]

Thoughts on whether Buffett will participate in the recap? I can see it happening...

 

This position itself has been extremely contrarian.  Joel Greenblatt talks about when he was running Gotham he would constantly be asked about the positions he owned in terms of "are you crazy?  haven't you seen the news?!".  Being contrarian =/= successful investing.  But it's a common ingredient.

 

Within the contrarian Fannie position one of my more contrarian ideas was that Warren Buffet's been sitting on $100bn and Fannie Mae... well... needs $100bn.  Buffet loved these companies before the excessive risk taking.  Buffet loves the banks post liquidity/capital rules.  To me it's a perfect match.  Crazy I guess..

 

There's also 0% chance that Buffet is not intensely aware of the details of the situation. 

[DRValue]

Thoughts on whether Buffett will participate in the recap? I can see it happening...

 

This position itself has been extremely contrarian.  Joel Greenblatt talks about when he was running Gotham he would constantly be asked about the positions he owned in terms of "are you crazy?  haven't you seen the news?!".  Being contrarian =/= successful investing.  But it's a common ingredient.

 

Within the contrarian Fannie position one of my more contrarian ideas was that Warren Buffet's been sitting on $100bn and Fannie Mae... well... needs $100bn.  Buffet loved these companies before the excessive risk taking.  Buffet loves the banks post liquidity/capital rules.  To me it's a perfect match.  Crazy I guess..

 

There's also 0% chance that Buffet is not intensely aware of the details of the situation.

 

Agree. When it's announced, it's gonna be one hell of a day.

[hardincap]

Buffett cares about economics of the business. It looks like capital ratios on the high side will be the cost of releasing f&f, in which case economics may not be attractive to Buffett. I expect it to be rather high if released

[Guest cherzeca]

if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

[Guest cherzeca]

Buffett cares about economics of the business. It looks like capital ratios on the high side will be the cost of releasing f&f, in which case economics may not be attractive to Buffett. I expect it to be rather high if released

 

lower cap ratio than banks, which brk loves

[DRValue]

Buffett cares about economics of the business. It looks like capital ratios on the high side will be the cost of releasing f&f, in which case economics may not be attractive to Buffett. I expect it to be rather high if released

 

They'll still need to offer c.15% ROE or its not just Buffett that won't be interested. On this occasion the lower return may not impact Buffett too much as the risk will be much lower with more capital. Maybe he could do some convertible preferred deal like Goldman.

 

Or was it BoA?

[orthopa]

doesnt have to be about GSEs--99% of americans have no idea what they do anyway (facepalm). pushing the enriching greedy hedge fund pals narrative will surely rile up warren's support base, and as any opportunistic politician would she'll play that card hard as she campaigns for '20

 

could this give trump pause?

 

I think the time has come and gone for enriching the rich hedge funds narrative. If someone does pipe up they better do it quick. Secondly they will likely make a stink once the plan is in motion. Too late at that point. Otting, Calabria, Mnuchin, WH are all aboard the train. The train isn't stopping.

 

I think its interesting that the MBA and other opponents haven't said a word since the Otting news was reported and then verified. Where is the opposition? Waters basically wants to know what the plan is and Warner barely got the time of day. Corker hasn't said shit since he left and I haven't read anything out of Stevens. The 5 fellow travelers last yelp was an admission of the future and a dying last breath.

 

As crazy as it seems since this is a 10+ year hold over of the GFC it's starting to seem like fatigue is settling in on the political side and any opposition will have a hard time drumming up fierce opposition about the "tax payer" " public loss private gain" etc.  How hard is it now to get the public riled up about the bailouts of the bank etc. This isnt an occupy wall street climate anymore. No one cares about this.

[Guest cherzeca]

" Corker hasn't said shit"

 

corker has gone long GSEs...no dummy

[rros]

if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

I don't know as much re Buffett as others here. But a pound of flesh is what he got historically. Which means if preferreds are in play and Srs. may go he could ask for perpetual and cumulative. Which might give the Jrs. a little less value.

[Guest cherzeca]

if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

I don't know as much re Buffett as others here. But a pound of flesh is what he got historically. Which means if preferreds are in play and Srs. may go he could ask for perpetual and cumulative. Which might give the Jrs. a little less value.

 

you are right he would want cumulative, but I think he sees his greatest value as the validation effect he provides, which in this recap scenario is very important to GSEs, and therefore very valuable to Buffett

[DRValue]

if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

I don't know as much re Buffett as others here. But a pound of flesh is what he got historically. Which means if preferreds are in play and Srs. may go he could ask for perpetual and cumulative. Which might give the Jrs. a little less value.

 

you are right he would want cumulative, but I think he sees his greatest value as the validation effect he provides, which in this recap scenario is very important to GSEs, and therefore very valuable to Buffett

 

This. The companies benefit with Buffets endorsement and Buffett gets to pull their pants down.

[undervalued]

I suspect that the admin plan referred to by otting is based upon moelis blueprint, and if it is and anybody from congress quacks, admin can simply say, fine go ahead, pass what you want, we are not stopping you...and then of course congress will do nothing

 

Agreed but there is a very limited window of time to get f&f released. i was very pleased to see that otting emphasized that Mnuchin is commited which tells me he won’t back down bc of political blowback but one can’t be sure

 

I wonder why don't Mnuchin or Otting just announce it themselves that F&F is released instead of saying plans in place and everyone signed off 2-3 months ahead? Can't they do that?

[Seahug]

From my calc's the only way prefs can generate significant value is SP's deemed repaid. Not sure how this can be done without congress. From an accounting perspective, payments were considered revenue by the govt and spent, while the SP is a loan from Treasury. 

 

Why specifically would this require Congress?  Treasury and FHFA (in its capacity as conservator on behalf of FNMA Board) can modify the terms of the existing contract.  Only these two parties are needed.  If both agree that the original terms have been paid off and negate the 2012 terms, and there is no actual exchange of money but rather a simple agreement that the loan has been deemed paid, why then would Congress need to be involved?

 

I understand FHFA can modify the terms of the contract but there are some technicalities. (Maybe just my imagination). But, isn't govt spending (revenue and expense) and borrowing authorized by congress? From a strict accounting perspective, the money paid back by FNMA has been recognized as revenue and has been spent. If the SP is considered repaid then that will require a write off of the loan/SP from treasury or a reversal of revenue. Can admin do that without congress?

 

But hey I'd be happy if FHFA can do it on his own.

 

 

[SnarkyPuppy]

if I was running the recap, I would first do an institutional private placement, before doing a public underwriting, and ask brk to backstop the PP...giving him warrants to agree to buy any amount not raised in the PP.  maybe PP=$20B. then with that as a successful first step, I would do a follow on $30B public offering. that would be a very good two step. so I can see Buffett being very helpful and willing, for a pound of flesh

I don't know as much re Buffett as others here. But a pound of flesh is what he got historically. Which means if preferreds are in play and Srs. may go he could ask for perpetual and cumulative. Which might give the Jrs. a little less value.

 

you are right he would want cumulative, but I think he sees his greatest value as the validation effect he provides, which in this recap scenario is very important to GSEs, and therefore very valuable to Buffett

 

This. The companies benefit with Buffets endorsement and Buffett gets to pull their pants down.

 

Bingo.

[orthopa]

There are more docs posted, have a look. They should outrage everyone. Easy way out for Otting is to release all 10,000 documents and documents that are on presidential privilege that should put many on shame.

 

 

Smoking Gun thread on Google Group

 

https://groups.google.com/forum/#!topic/fannie-and-freddie-preferreds/8NKN7kSK500

 

Additional related email:

This just 75 Days before the Net Worth Sweep was enacted.

 

To: Mary Miller

From: Michael Stegman

FHF A-Related Discussion at June 25 Morning Meeting June 25, 2012

 

…..................DeMarco no longer sees the urgency of amending the PSP As this year. He has raised two competing reasons for this new position: ( 1) the GSEs will be generating large revenues over the coming years, thereby enabling them to pay the 10% annual dividend well into the future......

 

I haven't seen this before.  can you provide a copy of the actual full email?

Yes, completely new. This changes the picture slightly (for the better). If DeMarco saw no death spiral coming, why did he agree on the 3rd? And why he went along with the narrative? Does this reinforce the ultra-vires argument? Are his actions becoming fraudulent behavior? Proof that Geithner's Treasury was completely in charge? Would love to see Miller's answer. Treasury had the FULL picture, no doubt. Just a bit earlier (or after, can't remember) Susan McFarland told Miller of the 50 billion in windfall profits coming in 2013. From her own oral testimony, if you all remember.

 

Are these really new documents? I cant imagine someone is just releasing these now. Who? Why now?

[rros]

There are more docs posted, have a look. They should outrage everyone. Easy way out for Otting is to release all 10,000 documents and documents that are on presidential privilege that should put many on shame.

 

 

Smoking Gun thread on Google Group

 

https://groups.google.com/forum/#!topic/fannie-and-freddie-preferreds/8NKN7kSK500

 

Additional related email:

This just 75 Days before the Net Worth Sweep was enacted.

 

To: Mary Miller

From: Michael Stegman

FHF A-Related Discussion at June 25 Morning Meeting June 25, 2012

 

…..................DeMarco no longer sees the urgency of amending the PSP As this year. He has raised two competing reasons for this new position: ( 1) the GSEs will be generating large revenues over the coming years, thereby enabling them to pay the 10% annual dividend well into the future......

 

I haven't seen this before.  can you provide a copy of the actual full email?

Yes, completely new. This changes the picture slightly (for the better). If DeMarco saw no death spiral coming, why did he agree on the 3rd? And why he went along with the narrative? Does this reinforce the ultra-vires argument? Are his actions becoming fraudulent behavior? Proof that Geithner's Treasury was completely in charge? Would love to see Miller's answer. Treasury had the FULL picture, no doubt. Just a bit earlier (or after, can't remember) Susan McFarland told Miller of the 50 billion in windfall profits coming in 2013. From her own oral testimony, if you all remember.

 

Are these really new documents? I cant imagine someone is just releasing these now. Who? Why now?

Maybe not new. I personally haven't seen them before. Neither have I seen them being referred to in any of the lawsuits. Looks like they may have been up on that site for a while? Don't know...

[allnatural]

I'm pretty sure I've read that document before (when it was first released) and its possibly in the Sweeney complaint as well.

[DRValue]

I expect we'll find out the plan or at least parts of it on Friday because the democrats will leak it with their narrative. If I was trump I'd tell the world the plan on Friday with my own narrative, if a response to that letter is mandatory.

[Guest cherzeca]

I expect we'll find out the plan or at least parts of it on Friday because the democrats will leak it with their narrative. If I was trump I'd tell the world the plan on Friday with my own narrative, if a response to that letter is mandatory.

 

I am not sure the otting will send waters and brown anything definitive. will announce plan when ready, then send them copy, I expect.  this letter is not a subpoena for cripes sakes

[ValueMaven]

Agreed ... however, at this point, loading up on a risk-adjusted basis as many pref's as possible makes the most sense.. esp if you are banking on Par + common conversion

 

one could argue this is the clearest time to be a pref or common holder in the life of this trade - regardless of the move higher... sure the prefs at one point were trading below $1, but that was basically 8yrs ago, and when factored in with the political and time value of money aspsect - I am not sure they are any different on a vol adjusted basis. 

 

Given recent news - do you think pref's are cheaper TODAY then say in Nov of 2012 (at $1)

[Guest cherzeca]

Agreed ... however, at this point, loading up on a risk-adjusted basis as many pref's as possible makes the most sense.. esp if you are banking on Par + common conversion

 

one could argue this is the clearest time to be a pref or common holder in the life of this trade - regardless of the move higher... sure the prefs at one point were trading below $1, but that was basically 8yrs ago, and when factored in with the political and time value of money aspsect - I am not sure they are any different on a vol adjusted basis. 

 

Given recent news - do you think pref's are cheaper TODAY then say in Nov of 2012 (at $1)

 

I think the risk-adjusted price of prefs is the most attractive in last five years.  fnmas was 10% higher than it is now before Perry decision, and then there was no thought that an admin plan might be in works.  we can quibble about which oral argument, Perry or collins en banc, sounded more promising, but add to current mix Otting's comments and it is hard to see how prefs today shouldn't be higher than before Perry decision.

[hardincap]

@cherzeca after losing so many court cases, the thesis shifted from legal resolution to political. The former is generally simpler and easier to handicap, so in that regard it makes sense to me that it is trading less than pre perry ruling. Politicians are fickle and the political landscape can change disorientingly quickly

[Guest cherzeca]

@cherzeca after losing so many court cases, the thesis shifted from legal resolution to political. The former is generally simpler and easier to handicap, so in that regard it makes sense to me that it is trading less than pre perry ruling. Politicians are fickle and the political landscape can change disorientingly quickly

 

ok, except the thesis is now both legal and political

[blackcoffee]

@cherzeca after losing so many court cases, the thesis shifted from legal resolution to political. The former is generally simpler and easier to handicap, so in that regard it makes sense to me that it is trading less than pre perry ruling. Politicians are fickle and the political landscape can change disorientingly quickly

 

ok, except the thesis is now both legal and political

 

are we all finally figuring out that those two things are basically the same?

[Eye4Valu]

@cherzeca after losing so many court cases, the thesis shifted from legal resolution to political. The former is generally simpler and easier to handicap, so in that regard it makes sense to me that it is trading less than pre perry ruling. Politicians are fickle and the political landscape can change disorientingly quickly

 

ok, except the thesis is now both legal and political

 

are we all finally figuring out that those two things are basically the same?

 

I still believe in checks and balances. Looking forward to both spheres of influence righting this wrong.