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

[stevevri]

Another thing to just throw out there.

 

In the case of Maniere it says:

"agreement between government and institution specifically excluded benefit to any third party."

 

This seems like a key distinction if the contract itself specifically excluded that.

 

In that case what was 'taken' was given under a contract that had a third-party exclusion. I suppose much like DTAs that are not good in a change of ownership or something like that?

 

 

 

 

[merkhet]

So I took a nice walk today to clear my head and think about this more, and I think the reason that the Government waited to pull out Maniere is what I said earlier:

 

Another random thought: if the Takings is declared to have happened (and be final) as of August 17, 2012 -- then it would seem that Lamberth's argument that the contract claim isn't ripe should go away.

 

It would be rather strange to say that for the purposes of a Taking, the shareholders lost everything on August 17, 2012 but that the liquidation preference (breach of contract) claim has not yet ripened.

 

I went back to the Lamberth opinion to take a look at the breach of contract dismissal. The opinion specifically stated that there was no breach of contract on the liquidation preference because it wasn't yet ripe:

 

"A claim is not ripe for adjudication if it rests upon ‘contingent future events that may not occur as anticipated, or indeed may not occur at all."

 

and

 

The question for the Court cannot be whether the Third Amendment diminishes an opportunity for liquidation preferences at some point in the future, but rather whether the plaintiffs have suffered an injury to their right to a liquidation preference in fact and at present.

 

Perhaps the Government will argue that the injury for breach of K then goes to the original holders as well, but I don't think that there is case law that would support that. After all, much of bankruptcy law is based on the exchanging of breached and contingent contracts -- and as far as I know, those claims accrue to the holder of the security at the time of adjudication.

[doughishere]

That's the one wrinkle to the case. In Maniere the receivership was one and done. Here, the sweep is continual. Does that matter from a common sense perspective? Sure. Does it matter from a legal perspective? Unclear.

 

 

I think even from a legal perspective, it's hard to argue for the below if you're the government. "At the time of the taking" to me sounds pretty cut and dry. The taking is still occurring as Fairholme holds the shares. August 17, 2012 was merely the start of the taking. Thus, "time of the taking" is not a single point in time in this case, but an ongoing matter.

 

Disclosure: Not a lawyer :D

 

 

the

defendant contends that the plaintiff fails one of the basic

proof elements for making out a takings case, that being a

showing of ownership of the subject property at the time of

the taking

 

 

I absolutely agree...its like they are arguing that they don't want to play the varsity team but they admit to taking.

[doughishere]

Another thing to just throw out there.

 

In the case of Maniere it says:

"agreement between government and institution specifically excluded benefit to any third party."

 

This seems like a key distinction if the contract itself specifically excluded that.

 

In that case what was 'taken' was given under a contract that had a third-party exclusion. I suppose much like DTAs that are not good in a change of ownership or something like that?

 

 

Thats another part of the case that i think we are not forgetting....the govt decided to go into conservatorship when the had the option to do the opposite. Its almost as if the looked around and are looking for reasons not to pay out to shareholders even though receivership would do that also

 

 

[doughishere]

merkhet, but with that document that was leaked earlier it was anticipated....

[merkhet]

I don't want this to sound like I'm picking on anybody, so please nobody take it that way.

 

People need to read the Maniere case again. As I've said (multiple times) before, Maniere has TWO claims in it.

 

The FIRST claim, is as follows:

 

The plaintiff first claims a breach of contract. The plaintiff argues that First Federal had contracted with the FSLIC and FHLBB regarding the propriety of the amortization of goodwill and that the Government breached this contract by the passage of FIRREA and the promulgation of regulations in conflict with guarantees made under the terms of that agreement.

 

Maniere owns shares in First Federal. His first claim was for a breach of contract because he claimed he was a third party beneficiary of the contract between First Federal & the federal regulators to allow for treating goodwill as a capital asset for the purposes of solvency -- which then went away and caused the insolvency. This particular claim and its reasoning have absolutely no bearing on the case before Sweeney.

 

The SECOND claim is as follows:

 

Alternatively, in the event that this Court rejects the contract theory as a jurisdictional basis, the plaintiff also claims entitlement to compensation based on a taking theory under the Fifth Amendment of the Constitution. The plaintiff claims that the change of regulation, which prohibited the amortization of goodwill and resulted in the insolvency of First Federal, constituted a taking of the value of the plaintiff's investment.

 

Maniere was an owner of shares in First Federal but not until after the issuance of the regulations changing the treatment of the goodwill but before the actual declaration of insolvency. Thus, Maniere claims that, completely separate from the third-party beneficiary claim, he suffered a taking because of the change in regulations which took away the value of his shares. This particular claim and its reasoning may have bearing on the case before Sweeney.

 

The court ruled against Maniere on both counts for completely separate reasons. The first being that he had no privity and, as correctly pointed out, the contract excluded him. The second being that he didn't own the shares at the time of the alleged Taking.

[merkhet]

merkhet, but with that document that was leaked earlier it was anticipated....

 

Can you explain this more? Which document? (We've had a few leaks now.) And what was anticipated?

[stevevri]

I don't want this to sound like I'm picking on anybody, so please nobody take it that way.

 

I am not and I am thankful for your commentary. Just attempting to learn. Thank you for the clarity.

[doughishere]

I don't want this to sound like I'm picking on anybody, so please nobody take it that way.

 

I am not and I am thankful for your commentary. Just attempting to learn. Thank you for the clarity.

 

We should be thanking you for putting up with us. Thanks.

[jawn619]

I don't want this to sound like I'm picking on anybody, so please nobody take it that way.

 

I am not and I am thankful for your commentary. Just attempting to learn. Thank you for the clarity.

 

We should be thanking you for putting up with us. Thanks.

+1

[Luke 532]

It'd be interesting to hear how people are sizing this

 

For what it's worth, the Kelly Formula suggests 40% of an account if you believe the following about FNMAS...

Value of security if successful: $25

Value of security if unsuccessful: $0

Probability of success: 50%

Probability of failure: 50% (obviously, based on prob of success)

 

Please do NOT take this as an endorsement to put 40% into FNMAS.  Just wanted to point out the obvious, that FNMAS may be a really, really good risk/reward situation.

[Jurgis]

I don't think that probability of success is 50%. I think it is (much?) lower. But I admit that I don't know a good way to estimate the probability. :)

[muscleman]

merkhet, I think you did a good summery here regarding Maniere case:

1. Maniere case has two claims. 3rd party beneficiary claim and takings claim. People's eyes are glued to the third party beneficiary claim ruling, and that is not even what the government is trying to apply to FnF. The government is trying to apply takings claim in Maniere case.

2. Maniere case's taking claims ruling evolves around "at the time of taking". In FnF's case "time" is continuous from August 7th 2012 to today. Therefore every shareholder of today is eligible to sue the government, because taking is still happening as of today, but in Maniere case taking was a one time event.

 

I think that argument is sufficient to throw out the government's motion, and that's why they didn't file the motion last year.

 

Thoughts?

[Luke 532]

I don't think that probability of success is 50%. I think it is (much?) lower. But I admit that I don't know a good way to estimate the probability. :)

 

The market agrees with you... at least today they do.  Never know with Mr. Market.  :D

 

I think it's 50/50 or better that FNMAS returns to par (or near it). Admittedly, it's nearly impossible to place odds on a successful outcome so take my 50/50 with a grain of salt.  Just a few big picture reasons why I like FNMAS at less than $4:

-Quotes from Sweeney in court, and rulings to date, show she is at least open to giving Fairholme a fighting chance.  She seems to have a backbone.

-I think it's pretty obvious that the government knows they did something wrong and are simply delaying as long as they can and denying as much as they can. 

-I also think the government just might be smart enough (hah!) to settle once they realize all of their shady actions will become public knowledge. 

 

For these reasons and others I say it's 50/50 or better... coupled with $21 profit vs $4 loss, well, I'll take it.

 

As an aside, the volatility also favors being bullish as it likely won't plummet to $0 on any information that is negative (unless it's case dismissed and NWS is allowed to continue for eternity).  There is precedent for FNMAS to trade around $12 on some positive news (not even a final victory in court or final settlement).  So there's that very real possibility that people can take opportunities to cash in between now and the end of this saga.  Admittedly, that's a trading mindset and might not be welcome on this board.

[stevevri]

merkhet, I think you did a good summery here regarding Maniere case:

1. Maniere case has two claims. 3rd party beneficiary claim and takings claim. People's eyes are glued to the third party beneficiary claim ruling, and that is not even what the government is trying to apply to FnF. The government is trying to apply takings claim in Maniere case.

2. Maniere case's taking claims ruling evolves around "at the time of taking". In FnF's case "time" is continuous from August 7th 2012 to today. Therefore every shareholder of today is eligible to sue the government, because taking is still happening as of today, but in Maniere case taking was a one time event.

 

I think that argument is sufficient to throw out the government's motion, and that's why they didn't file the motion last year.

 

Thoughts?

 

One other possible thing. In Maniere it notes:

 

"Specifically, as the plaintiff purchased the subject shares after the enactment of FIRREA and after the effective date of the OTS regulations"

"The defendant demonstrates that the FIRREA was passed and the regulations which precluded the computation of goodwill as a capital asset became effective before the

date on which the plaintiff purchased the subject shares"

 

It would seem to my amateur opinion there is quite a difference between the sweep and the enactment of legislation (FIRREA) and regulatory changes (OTS)?

Counting goodwill differently by law and regulation, and seizing actual profits, is quite different.

 

[merkhet]

There are two ways to continue legally for Fairholme.

 

(1) Claim a continual taking. Would that work? Unclear. Read the paragraph in Maniere concerning environmental regulatory takings near the end of the case. It seems that environmental regulations are an ongoing process as well.

 

(2) Claim that this is a physical taking so Maniere doesn't apply. This might be helped or hurt by the AIG case.

[doughishere]

One things for sure. fairholmes response should be interesting.

[Luke 532]

Gaspo: Court decision in legality of AIG bailout likely by end of June

 

http://video.foxbusiness.com/v/4290734773001/gaspo-court-decision-in-legality-of-aig-bailout-likely-by-end-of-june/?playlist_id=933116626001#sp=show-clips

 

"If Greenberg wins looks for shares of Fannie Mae and Freddie Mac to soar..."

[hyten1]

aig shares will tank :(

 

Gaspo: Court decision in legality of AIG bailout likely by end of June

 

http://video.foxbusiness.com/v/4290734773001/gaspo-court-decision-in-legality-of-aig-bailout-likely-by-end-of-june/?playlist_id=933116626001#sp=show-clips

 

"If Greenberg wins looks for shares of Fannie Mae and Freddie Mac to soar..."

[Mephistopheles]

Gaspo: Court decision in legality of AIG bailout likely by end of June

 

http://video.foxbusiness.com/v/4290734773001/gaspo-court-decision-in-legality-of-aig-bailout-likely-by-end-of-june/?playlist_id=933116626001#sp=show-clips

 

"If Greenberg wins looks for shares of Fannie Mae and Freddie Mac to soar..."

 

This really depends on how the judge rules a win. He can say it violated 13(3) of the Federal Reserve Act but was not a 5th Amendment taking. Greenberg would win but Fannie and Freddie would tank in this case.

 

Unfortunately for us, it seems like there's a greater chance of it being a 13(3) violation based on what I've read of Judge Wheeler's and David Boies' (Greenberg's lawyer) remarks.

[Luke 532]

"Motion to Remove the ‘Protected Information’ Designations from Depositions" filed this afternoon.

 

It will be very interesting if those depositions get out into the public domain.  At least two depositions completed so far, total of seven expected by the end of July.

[merkhet]

"Motion to Remove the ‘Protected Information’ Designations from Depositions" filed this afternoon.

 

It will be very interesting if those depositions get out into the public domain.  At least two depositions completed so far, total of seven expected by the end of July.

 

Nice to see that Cooper & Kirk is ratcheting up the pressure. Looks like a response is due by 6/29.

[muscleman]

"Motion to Remove the ‘Protected Information’ Designations from Depositions" filed this afternoon.

 

It will be very interesting if those depositions get out into the public domain.  At least two depositions completed so far, total of seven expected by the end of July.

 

Nice to see that Cooper & Kirk is ratcheting up the pressure. Looks like a response is due by 6/29.

 

I think undoubtedly the response would be "No, this will cause financial system breakdowns and we cannot reveal any of those information."  :)

Then what happens? Will both sides schedule oral argument or will the judge just rule whether the information will be unvailed?

[orthopa]

aig shares will tank :(

 

Gaspo: Court decision in legality of AIG bailout likely by end of June

 

http://video.foxbusiness.com/v/4290734773001/gaspo-court-decision-in-legality-of-aig-bailout-likely-by-end-of-june/?playlist_id=933116626001#sp=show-clips

 

"If Greenberg wins looks for shares of Fannie Mae and Freddie Mac to soar..."

 

That would be my que to load up more AIG as AIG is not liable monetarily if Greenberg wins.

[doughishere]

Star International vs US Ruling. The AIG case.

 

https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMTM2NzYwMTc4MzA2NDIyMzY5NDYBU3luQkFmRnlOeUFKATAuMQEBdjI