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

[rros]

Housing Finance Reform: Next Steps Tuesday Sept 10th

https://www.banking.senate.gov/hearings/housing-finance-reform-next-steps

 

Mnuchin, Calabria, Carson

 

whoa.

 

I am not a big fan of a senate hearing at this moment.  would have preferred to see it earlier this year when more general terms could be discussed and/or at the end of the year to give more time for a potential 4th Amendment negotiation.

 

good luck everyone.

 

I’ll take the exact opposite. SBC will passive aggressive posture. Nothing will happen other than mnuchin saying you have a role so do it or not and stop bugging us. Warner will be a certain clown

 

This looks like the final warning/offer from the trio to congress to act. We all know what will happen or not happen that is, at least in the short term. Looks like plan release is T-7 days for those keeping score at home.

Not a warning. Calabria and Mnuchin need Congress to come up with an explicit guarantee so that the securities continue to hold their AAA rating. Even then, FF may not be able to keep up with the government's AAA. In my view, a good outcome from this hearing would be one that reassures the market there is bipartisan consensus on the explicit guarantee. The rest will rely on this.

[Guest cherzeca]

@rros

 

there will be no congressional action on the limited federal guaranty. period. the HFSC will not even take it up imo even if the senate passes it (and in an election year I dont see any Ds voting for a R-led proposal, so I doubt the senate passes it through cloture).  now this SBC hearing will be good optics if everyone is civil and everyone notes that a limited fed guaranty is helpful (query if the plan calls for maintenance of the treasury line until capital is built up, which is even better than a limited fed guaranty), but this is just an opportunity for senator to do what they do best, which is bloviate in front of the camera's red dot

[Midas79]

@cherzeca

 

Regarding your comment on Tim's blog (though I would love it if the Plan was delayed and they all marched over to SBC and queried, “what’s up?”).

 

I can just imagine Mnuchin doing this then calling Trump or Kudlow on his way out of the meeting and saying "Do it." Then the plan gets released as Mnuchin gets in the car to leave the Capitol. Ultimate boss move.

 

About the other post where I asked around 20 questions, thanks for the response. That's what I get for having too much caffeine all at once.

[Guest cherzeca]

I have the general sense that mnuchin and Crapo are working cooperatively together. I imagine that this hearing will be rather low key, except for perhaps Warner. I am interested to see what brown says and if warren shows up. IMO this is a necessary paying respect to the senators and there will be no substantive repercussions. We will see. Must watch tv.

[rros]

@rros

 

there will be no congressional action on the limited federal guaranty. period. the HFSC will not even take it up imo even if the senate passes it (and in an election year I dont see any Ds voting for a R-led proposal, so I doubt the senate passes it through cloture).  now this SBC hearing will be good optics if everyone is civil and everyone notes that a limited fed guaranty is helpful (query if the plan calls for maintenance of the treasury line until capital is built up, which is even better than a limited fed guaranty), but this is just an opportunity for senator to do what they do best, which is bloviate in front of the camera's red dot

So you do not think the widening of the spreads seen in June -as talk of privatization peaked- is an obstacle? I would think this is the reason why Calabria changed his tune on a speedy privatization. Also, Brown loves the status quo.

[Luke 532]

Plan coming tomorrow...

 

@SalehaMohsin

Treasury talked w/ restructuring firm Houlihan Lokey about hiring it to advise on Fannie, Freddie, per sources. Treasury spokesman says there are no current discussions. Treasury's GSE report  to be released tomorrow, sources say

[Guest cherzeca]

@rros

do you expect the plan to say that the limited federal mbs guaranty is an essential part of the recap and there will be no going forward administratively unless congress delivers this...thereby giving congress a veto over the recap?

[rros]

@rros

do you expect the plan to say that the limited federal mbs guaranty is an essential part of the recap and there will be no going forward administratively unless congress delivers this...thereby giving congress a veto over the recap?

No, of course not. My fear is that Congress has the same understanding. I just don't/did not like Calabria's change back in June/July.

[orthopa]

https://www.bloomberg.com/news/articles/2019-09-04/treasury-discussed-hiring-houlihan-to-advise-on-fannie-freddie?utm_campaign=socialflow-organic&utm_content=business&utm_medium=social&cmpid=socialflow-twitter-business&utm_source=twitter

[Guest cherzeca]

this is a good discussion of the duty to serve statutory obligations (DTS) of GSEs (and presumably any newly chartered guarantors as per congressional action), versus the elimination of these obligations in the corker/Warner proposal and the latest Crapo 3 pager in place of a market access fee.  https://themreport.com/news/09-03-2019/a-different-perspective

 

think this through.  do you think congress will enact competing charter legislation and include the DTS obligations on new guarantors? if so, do you think those new guarantors will want to be subject to these DTS obligations, as well as compete against entrenched trillion dollar goliaths?

 

if you think congress will strip the DTS obligations out of the new chartering authority, as per Crapo 3 pager, do you think that will get bi-partisan support in senate from the likes of brown/warren, or any support in the House?

 

additional chartering authority passing congress is so unlikely it is laughable.  but wouldn't you think POTUS/mnuchin/calabria appreciate this? so imo this SBC hearing next Tuesday will all be kabuki theater.

[investorG]

this is a good discussion of the duty to serve statutory obligations (DTS) of GSEs (and presumably any newly chartered guarantors as per congressional action), versus the elimination of these obligations in the corker/Warner proposal and the latest Crapo 3 pager in place of a market access fee.  https://themreport.com/news/09-03-2019/a-different-perspective

 

think this through.  do you think congress will enact competing charter legislation and include the DTS obligations on new guarantors? if so, do you think those new guarantors will want to be subject to these DTS obligations, as well as compete against entrenched trillion dollar goliaths?

 

if you think congress will strip the DTS obligations out of the new chartering authority, as per Crapo 3 pager, do you think that will get bi-partisan support in senate from the likes of brown/warren, or any support in the House?

 

additional chartering authority passing congress is so unlikely it is laughable.  but wouldn't you think POTUS/mnuchin/calabria appreciate this? so imo this SBC hearing next Tuesday will all be kabuki theater.

 

the hearing could also include a series of hedge fund attacks and rhetoric from both sides at best and jumpstart-like discussions or threats in a more negative outcome.  this is the real deal, not a bunch of lobbyists and industry specialists, plenty can go right or wrong with lasting consequences.  obviously, what's in the report, if/when it comes out, is crucial in addition to the hearing.

[Luke 532]

We're going to know a lot more about how this saga plays out in about 24 hours...

 

#GSE plan to be released after market close tomorrow. Journalists to be briefed and embargoed until then.

[Midas79]

We're going to know a lot more about how this saga plays out in about 24 hours...

 

#GSE plan to be released after market close tomorrow. Journalists to be briefed and embargoed until then.

 

Nice. We also get to see how credible ACG Analytics is. If they end up being right about this I will look at their previous tweets to see what additional info can be garnered.

 

The 2-minute video in the previous tweet is a good watch for those who didn't subscribe.

[Guest cherzeca]

this is a good discussion of the duty to serve statutory obligations (DTS) of GSEs (and presumably any newly chartered guarantors as per congressional action), versus the elimination of these obligations in the corker/Warner proposal and the latest Crapo 3 pager in place of a market access fee.  https://themreport.com/news/09-03-2019/a-different-perspective

 

think this through.  do you think congress will enact competing charter legislation and include the DTS obligations on new guarantors? if so, do you think those new guarantors will want to be subject to these DTS obligations, as well as compete against entrenched trillion dollar goliaths?

 

if you think congress will strip the DTS obligations out of the new chartering authority, as per Crapo 3 pager, do you think that will get bi-partisan support in senate from the likes of brown/warren, or any support in the House?

 

additional chartering authority passing congress is so unlikely it is laughable.  but wouldn't you think POTUS/mnuchin/calabria appreciate this? so imo this SBC hearing next Tuesday will all be kabuki theater.

 

the hearing could also include a series of hedge fund attacks and rhetoric from both sides at best and jumpstart-like discussions or threats in a more negative outcome.  this is the real deal, not a bunch of lobbyists and industry specialists, plenty can go right or wrong with lasting consequences.  obviously, what's in the report, if/when it comes out, is crucial in addition to the hearing.

 

you may be right, but again I'll take the other side.  senators will grandstand and bloviate but in the face of a mature and thoughtful plan (one hopes) and the most senior three administrators, I dont think there will be much for them to actually do but exercise oversight...which is a fancy term for getting free air time.  there might be some interesting questions, but I dont see any punches landing

[Guest cherzeca]

We're going to know a lot more about how this saga plays out in about 24 hours...

 

#GSE plan to be released after market close tomorrow. Journalists to be briefed and embargoed until then.

 

in the age of twitter and gaspo, I wonder how tight that news embargo during the day tomorrow will be.  there will be rumors and probably volatility tomorrow

[Luke 532]

Today from Don Layton

The 2018 GSE Stress Test Results: A Major Policy Success and Its Implications for the Proposed Capital Rule

https://www.jchs.harvard.edu/blog/the-2018-gse-stress-test-results-a-major-policy-success-and-its-implications-for-the-proposed-capital-rule/

[Midas79]

Today from Don Layton

The 2018 GSE Stress Test Results: A Major Policy Success and Its Implications for the Proposed Capital Rule

https://www.jchs.harvard.edu/blog/the-2018-gse-stress-test-results-a-major-policy-success-and-its-implications-for-the-proposed-capital-rule/

 

Layton must have some agenda here, perhaps to make himself and his tenure at Freddie look good. I don't think he, Freddie, FHFA, or anyone else can take nearly as much credit for this as he would like. I would bet that having 2008-era mortgages continually rolling off, as opposed to specific actions taken by FnF, explain the lion's share of the decline in projected losses.

 

Calabria said that he wants to fix the roof while the sun is shining. I think he's going to set capital requirements at worst-case-scenario levels and just hold them there, using the environment of the early 2010s as a baseline, rather than making them low now and trying to ramp them up over time. That last idea runs the risk of a recession coming out of nowhere. Incidentally, that's one reason why I think the recap will have to be pretty fast, with the other being that a new president could replace Mnuchin with a far less GSE-friendly Treasury secretary who could then refuse to ever let FnF out.

[DRValue]

I think there may be a spike in the share prices today or tomorrow, but nothing spectacular. Reason being the only real positive is the certainty of recap and release. I don't see a recap plan being announced, we don't have final capital requirements and NWS doesn't end till q4. I don't expect terms for nws till then.

So no dividend timetable or conversion news. In fact there will be uncertainty regarding completion still, however unlikely.

The real news will be the terms of the nws in q4 that could surprise to the upside on any terms.

[orthopa]

I think there may be a spike in the share prices today or tomorrow, but nothing spectacular. Reason being the only real positive is the certainty of recap and release. I don't see a recap plan being announced, we don't have final capital requirements and NWS doesn't end till q4. I don't expect terms for nws till then.

So no dividend timetable or conversion news. In fact there will be uncertainty regarding completion still, however unlikely.

The real news will be the terms of the nws in q4 that could surprise to the upside on any terms.

 

I broadly agree. I think the language of stopping the NWS/building capital is important too ie immediate, eventual, important, highly recommended etc.  Logic would make one think that if the recommendation by an entity is to start building capital/stop NWS then it would happen sooner then later ie no later then Q4 earnings. I mean how can you not follow your own recommendation on paper? This is the US gov tho.

[Luke 532]

Dick Bove update yesterday...

Bove090419-GSE-Update-1.pdf

[DRValue]

Dick Bove update yesterday...

 

I read boves common share analysis on junior preferred conversion. I feel like people think the treasury or fhfa will turn round and tell the GSEs to convert preferred at silly common prices. I don't see this at all. It'll be left to the companies to raise capital as they see fit, which was indicated by calabria.

 

Treasury and fhfa controlling private company recap leads to more lawsuits imo. Unless that would be within fhfa remit and not ultra vires (see, I do listen to the court hearings).

[orthopa]

Dick Bove update yesterday...

 

I read boves common share analysis on junior preferred conversion. I feel like people think the treasury or fhfa will turn round and tell the GSEs to convert preferred at silly common prices. I don't see this at all. It'll be left to the companies to raise capital as they see fit, which was indicated by calabria.

 

Treasury and fhfa controlling private company recap leads to more lawsuits imo. Unless that would be within fhfa remit and not ultra vires (see, I do listen to the court hearings).

 

Why is $2-4 dollars a share silly prices when treasury owns an 80% stake, preferred conversion builds capital faster and capital levels should be robust which is the whole point of all of this?

 

I don't see how you can sue knowing the risk before the restructuring? It isn't like common holders are going to be blind sided. Whats the argument? I didn't make as much as I thought i would so i will sue you?

 

The obligation is to recap the companies not a target price based on speculation and ones purchase price. As hashed out many times before Preferred has capital structure preference and contract value. Again who has commons seat at the table and fiduciary duty?

 

My question would be how do you settle the lawsuits in your opinion?

[Guest cherzeca]

@dr

 

you raise a good question.  how much "influence" will fhfa and calabria have on the terms of financial markets capital raising etc in connection with the companies' recap.  I think as long as they remain in conservatorship Calabria as conservator still exercises the powers of the board, but in financial transactions like a series of offerings, just as the board would, calabria should be  hiring competent financial advisors for the companies and following their good financial advice.  and since the companies are transitioning out of conservatorship, though they won't be out of it until they are out of it, he would be well advised to cede increasing amounts of responsibility to the board as time goes on.

[DRValue]

@dr

 

you raise a good question.  how much "influence" will fhfa and calabria have on the terms of financial markets capital raising etc in connection with the companies' recap.  I think as long as they remain in conservatorship Calabria as conservator still exercises the powers of the board, but in financial transactions like a series of offerings, just as the board would, calabria should be  hiring competent financial advisors for the companies and following their good financial advice.  and since the companies are transitioning out of conservatorship, though they won't be out of it until they are out of it, he would be well advised to cede increasing amounts of responsibility to the board as time goes on.

 

That's how I see it and what calabria has hinted at. Hopefully it goes that way.

[DRValue]

Dick Bove update yesterday...

 

I read boves common share analysis on junior preferred conversion. I feel like people think the treasury or fhfa will turn round and tell the GSEs to convert preferred at silly common prices. I don't see this at all. It'll be left to the companies to raise capital as they see fit, which was indicated by calabria.

 

Treasury and fhfa controlling private company recap leads to more lawsuits imo. Unless that would be within fhfa remit and not ultra vires (see, I do listen to the court hearings).

 

Why is $2-4 dollars a share silly prices when treasury owns an 80% stake, preferred conversion builds capital faster and capital levels should be robust which is the whole point of all of this?

 

I don't see how you can sue knowing the risk before the restructuring? It isn't like common holders are going to be blind sided. Whats the argument? I didn't make as much as I thought i would so i will sue you?

 

The obligation is to recap the companies not a target price based on speculation and ones purchase price. As hashed out many times before Preferred has capital structure preference and contract value. Again who has commons seat at the table and fiduciary duty?

 

My question would be how do you settle the lawsuits in your opinion?

 

I just don't see the point of needless shareholder value destruction by raising capital at depressed common prices that would be much lower than projected by moelis. I'm not saying moelis is gospel but I just don't see the need. It feels like projections are all based on current share prices rather than what the business are actually worth.

 

Re lawsuits for common shareholders, I see lawsuits raised all the time against management when the price falls. Largely these are frivolous imo and I'm no legal expert (how did you know?) But If I'm bill Ackman I'd throw everything at it if they diluted me unnecessarily.

I know we've been through this before and no one s view will change until capital is raised, but I'm still commenting on boves analysis.

 

I wonder if boves capital raise price changes when the commons hit 5?

 

The good thing is these questions are closer to being answered than ever.

 

I should know this already but I wonder whether they can leave conservatorship and turn dividends back on, once they aren't critically under capitalized? That would be a game changer imo.