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

[DRValue]

So the next potential catalyst is the capital rule, followed by pspa amendment and settlement within the next year.

 

So we're looking at another 12 months before any significant share price appreciation.

 

Obviously pspa amendment can happen any time but does anyone see this going any other way?

[Fat Pitch]

Anyone getting the feeling common will get all the upside while jr prefs are only capped at par? The way the securities are trading seems to acknowledge this possible outcome.

[Guest cherzeca]

@allnatural

 

do you have link to ben Elliot Bloomberg quote or was that all there was?

[Guest cherzeca]

seems to me that the GSEs should be retaining investment bankers if they are charged with coming up with recap plans...which means FHFA and treasury should as well.  I would be curious to see how soon that occurs

[allnatural]

Fannie Mae Sweep Fixed, Treasury Works Toward Settlement: React

Contributing Analysts Elliott Z Stein (Litigation)

(Bloomberg Intelligence) -- RECENT EVENT REACTION: The Trump administration's timeliness in allowing Fannie Mae to retain $25 billion in capital over time, offset against a higher valuation of Treasury's shares, bodes well for a final capital rule by year-end. We think it paves the way for a robust deal settling shareholder litigation and eliminating Treasury's senior preferred stake, possibly in 2020.

 

@allnatural

 

do you have link to ben Elliot Bloomberg quote or was that all there was?

[Guest cherzeca]

Fannie has $6.4B of capital now.  getting to $25B would take about 6 quarters, which would appear to be the max timeframe Mnuchin is allowing this

[allnatural]

In terms of timeline, last tidbit of info we have to go off of is that Calabria still aims to complete the PSPA amendment by the end of the year... I don't think this can happen until the FHFA capital rule is finalized which i think is on schedule for Q4 as well. Notice the letter agreement makes reference to a singular additional amendment, not plural amendment(s). I still believe we are on track for a Q4-Q1 all encompassing PSPA amendment which should finalize the treatment / terms for JPS.

[Guest cherzeca]

In terms of timeline, last tidbit of info we have to go off of is that Calabria still aims to complete the PSPA amendment by the end of the year... I don't think this can happen until the FHFA capital rule is finalized which i think is on schedule for Q4 as well. Notice the letter agreement makes reference to a singular additional amendment, not plural amendment(s). I still believe we are on track for a Q4-Q1 all encompassing PSPA amendment which should finalize the treatment / terms for JPS.

 

I agree with this.  not much should be coming out of DC during this Q other than the capital rule, so attention now turns to the Bhatti oral arg 10/15, soctus possible cert of collins, and November arg in front of Sweeney.

 

while I think the market expects not much to happen this Q and hence no hot money can be expected to come in, I do like junior prefs pricing here, given collins win and now admin actually taking first step and not just tawking

[DRValue]

In terms of timeline, last tidbit of info we have to go off of is that Calabria still aims to complete the PSPA amendment by the end of the year... I don't think this can happen until the FHFA capital rule is finalized which i think is on schedule for Q4 as well. Notice the letter agreement makes reference to a singular additional amendment, not plural amendment(s). I still believe we are on track for a Q4-Q1 all encompassing PSPA amendment which should finalize the treatment / terms for JPS.

 

They must expect potential delays to pspa agreement though as they've given themselves 18 months through the letter agreement.

[allnatural]

18 months sets them up for q4 2020 / q1 2021 ipo as calabria discussed. PSPA amendment must be completed way before then / before any roadshow begins.

[DRValue]

18 months sets them up for q4 2020 / q1 2021 ipo as calabria discussed. PSPA amendment must be completed way before then / before any roadshow begins.

 

Ah yes good point. Hopefully they'll want the stock price to bid up, so yes definitely before 18 months.

[DocSnowball]

All we've seen is capital retention in lieu of an increase in the liquidation preference. This in the face of Lamberth and Collins, and at a time distant enough from the elections. And there is no incentive to act urgently in favor of a shareholder settlement in 2020 until elections are over, otherwise it provides fodder for political opponents coming into the election season. Unless the Courts provide a judgment otherwise, I don't see a dramatic settlement unfolding in the next year.

[Midas79]

Anyone getting the feeling common will get all the upside while jr prefs are only capped at par? The way the securities are trading seems to acknowledge this possible outcome.

 

Replace "upside" with "downside" and I would agree with you on the commons. I think there is a very high chance that the juniors are converted to commons at a ratio better than that in the market, so they will share any upside the commons have.

 

I think the price action is explained by the typical money flow of commons to liquid prefs to illiquid prefs. The commons are always the first to overreact to anything.

[Guest cherzeca]

Anyone getting the feeling common will get all the upside while jr prefs are only capped at par? The way the securities are trading seems to acknowledge this possible outcome.

 

Replace "upside" with "downside" and I would agree with you on the commons. I think there is a very high chance that the juniors are converted to commons at a ratio better than that in the market, so they will share any upside the commons have.

 

I think the price action is explained by the typical money flow of commons to liquid prefs to illiquid prefs. The commons are always the first to overreact to anything.

 

if the deal is to have juniors convert into the common at the re-IPO price, one can expect the re-IPO price to be a discount to then recent trading range of common.  this is all spec and a ways off though

[Luke 532]

Calabria wrote an opinion piece today: https://www.cincinnati.com/story/opinion/2019/09/30/opinion-future-affordable-housing-depends-finance-reform/2423345001/

[Guest cherzeca]

Calabria wrote an opinion piece today: https://www.cincinnati.com/story/opinion/2019/09/30/opinion-future-affordable-housing-depends-finance-reform/2423345001/

 

thanks Luke.  I dont know how you can say in same breath that there is a low income housing shortage, the GSEs objective is to promote low income housing, and the GSEs should reduce their footprint

[Wiggins]

Calabria was also interviewed yesterday (audio):

 

http://indypolitics.org/redefining-fannie-and-freddie/?fbclid=IwAR2Y2I9kekicUpJgWkgEgNscWj_aAuUITAv5KtpRquOY8UXaV0xrC8nyko0

 

I think this is his longest interview and also the most reasonable. He says they will build capital for about a year. Some positives are that he corrected the interviewer a couple of times and said that they already ARE private companies with shareholders. And he mentioned the shareholders. His messaging overall is consistent, that he is there to get them out of conservatorship but major changes are up to Congress. Some negatives are that he still talks about fixing problems with their lending standards and de-risking them, but his criticism of the GSEs was more moderate than usual.

[Wiggins]

https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbalife-pays-sec-20-million-to-settle-charges-it-misled-investors/#1db8503580b8

[Luke 532]

Pagliara today: https://www.forbes.com/sites/timpagliara/2019/10/01/america-is-about-to-do-the-right-thing-in-housing-finance-reform-we-have-tried-everything-else/

[DRValue]

So with prices falling across the board, what's the appetite for prefs on the board now?

[Ahab]

I'd buy more but I'm already maxed. I suspect that's a similar situation for many commenters here. 

[Luke 532]

I'd buy more but I'm already maxed. I suspect that's a similar situation for many commenters here.

 

+1

 

[Wiggins]

haha I thought I was linking to this same article.... sorry don't know how that happened when I posted the one right before

 

Pagliara today: https://www.forbes.com/sites/timpagliara/2019/10/01/america-is-about-to-do-the-right-thing-in-housing-finance-reform-we-have-tried-everything-else/

[Wiggins]

I'd buy more but I'm already maxed. I suspect that's a similar situation for many commenters here.

 

+2

 

[TwoCitiesCapital]

So with prices falling across the board, what's the appetite for prefs on the board now?

 

 

I feel the same as I did back in May, though probably leaning a hair more towards adding

 

 

I'm torn between adding because outcome appears to be getting more positive than what it was a year ago

 

and

 

Reducing exposure because the price reflects those developments, we've been burned by rallies before, and it's what prudent risk/portfolio management would advise.

 

I think I'm gonna settle in the middle and just hold what I already have recognizing that the 2-3x appreciation we've seen increased the position for me.