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

[Guest cherzeca]

@IG. so assume I am right and in seila scotus finds cfpb director must be at will, and voids the seila CID.  scotus logically would GVR collins to 5th C, at which point the big issue becomes not whether calabria can be fired (though HERA still states only for cause), but whether 5th C must give backward relief as well and void NWS.  fhfa could find ways to distinguish the seila CID from the collins NWS.  also, fhfa could distinguish itself from the cfpb in ways that make a direct read through from seila to collins inappropriate. again, I think this is a losing argument, but even losing arguments take time to lose.  this would require briefing/argument etc, and this would take time, and fhfa might have strategic reasons to string all of this out as long as possible.  frankly, if Biden wins, P shareholders might also want this to be strung out as long as possible if they think it will be in their interest

 

Thanks.  Let's say Seila rules that CFPB head can be fired by the prez and that Calabria fights that by suggesting FHFA is different than CFPB.  If Biden tries to fire Calabria in January who gets the benefit of the doubt -- Calabria gets to stay until it's resolved in the courts or Calabria has to leave and can come back if he wins in court?

 

status quo until court says otherwise.  of course Calabria might need to hire a bodyguard

[Luke 532]

SCOOP: Advisers to @JoeBiden say if former VP elected prez he will remove @MarkCalabria from FHFA, stall plans to recap, release @FannieMae @FreddieMac; Calabria said to be planning for a poss Biden victory. more now @FoxBusiness

[orthopa]

SCOOP: Advisers to @JoeBiden say if former VP elected prez he will remove @MarkCalabria from FHFA, stall plans to recap, release @FannieMae @FreddieMac; Calabria said to be planning for a poss Biden victory. more now @FoxBusiness

 

I think he and Mnuchin have been planning for a Biden victory ever since things were delayed last summer. I dont think this really news to any of those that post here since we follow it so closely. If Calabrias' word is to be taken for true its only common sense.

 

The silver lining of this I think is that it may speed things up again. FWIW things like this seem to come out "per sources" as a trial balloon. This has happened a couple of times through Gasparino and he hasnt been totally off with his sources. He is heavily slanted in his interpretation against shareholders via twitter so I tend to focus more on the news then his interpretation.

 

Calabria could take the political angle now that he had to act more aggressively before the election to ensure he follow the law via HERA to release FnF from conservator ship. He could easily say he couldn't let political uncertainty get in the way of the law.

 

This could be sped up real quick once FnF pick advisors.  Spend the rest of summer coming up with a recap plan and do a 4th amendment at the end of summer/early fall.

[Guest Covid-19_Survivor]

SCOOP: Advisers to @JoeBiden say if former VP elected prez he will remove @MarkCalabria from FHFA, stall plans to recap, release @FannieMae @FreddieMac; Calabria said to be planning for a poss Biden victory. more now @FoxBusiness

 

1) "Advisors to": It's just a anti-Trump warning, ie, vote for the man.

2) Biden has maybe 50% of his brain cells remaining so the call won't be his.

3) More Dems back us than GOP does so whatever.

 

[Guest cherzeca]

"3) More Dems back us than GOP does so whatever."

 

dont disagree and I always think a whisper to gasparino for him to "scoop" betrays more weakness than strength on the part of the whisperer...but I also think that calabria/mnuchin will accelerate in nov/dec if Biden wins...and since I expect there to be litigation challenges in battleground states, all of this may be done more under conditions of uncertainty than anything else

[muscleman]

@IG. so assume I am right and in seila scotus finds cfpb director must be at will, and voids the seila CID.  scotus logically would GVR collins to 5th C, at which point the big issue becomes not whether calabria can be fired (though HERA still states only for cause), but whether 5th C must give backward relief as well and void NWS.  fhfa could find ways to distinguish the seila CID from the collins NWS.  also, fhfa could distinguish itself from the cfpb in ways that make a direct read through from seila to collins inappropriate. again, I think this is a losing argument, but even losing arguments take time to lose.  this would require briefing/argument etc, and this would take time, and fhfa might have strategic reasons to string all of this out as long as possible.  frankly, if Biden wins, P shareholders might also want this to be strung out as long as possible if they think it will be in their interest

 

Thanks.  Let's say Seila rules that CFPB head can be fired by the prez and that Calabria fights that by suggesting FHFA is different than CFPB.  If Biden tries to fire Calabria in January who gets the benefit of the doubt -- Calabria gets to stay until it's resolved in the courts or Calabria has to leave and can come back if he wins in court?

 

status quo until court says otherwise.  of course Calabria might need to hire a bodyguard

 

I would think so.... But when Trump fired the CFPB director, she refused to leave, but left later anyway.

https://en.wikipedia.org/wiki/English_v._Trump

 

Why wouldn't the same happen to Calabria if Biden comes to power?

[Luke 532]

Freddie hires JP Morgan

Fannie hires Morgan Stanley

[Fat Pitch]

No more top ramen for shareholders?  8)

 

Freddie hires JP Morgan

Fannie hires Morgan Stanley

[orthopa]

Well this gives MC and SM just under 5 months to come to an "agreement" on the 4th amendment, finalize the capital rule, and JP Morgan and MS time to come up with a recap plan. You would have to imagine some sort of a recap plan was pitched during the RFP. Sure they are the 2 powerhouses but would they show up to the interview emptyhanded?

 

With preferred trading lower then pre covid the market really is pricing in election risk I believe. Market either doesn't believe Trump will win or MC can get the job done in the 2 months after election. A 4th amendment would go a long way towards assuring investors the NWS is over for good but as cheesy as it sounds coming off the OTC would allow some more exposure to the securities too.

 

Couple of questions for the board.

 

1. Is losing Selia bad for the preferred share price until a Trump win due to uncertainty of how long MC stays?

 

2. Does the relist of the securities move the needle and is it done before the "big bang" of consent decree, recap plan that is being hypothesized?

 

3. Its seems the pace of reform has certainly picked up since HL was hired in Feburary. Does anyone see the final PSPA amendment coming this summer or do MC and SM continue to "negotiate" to the end?

[WB_fan82]

I think relist would be a significant positive.

 

Not only would it be a very strong intent signal, but it could herald the start of the recapitalization with setting exchange ratios on conversions based on listed equity price and not OTC equity prices.

[Guest cherzeca]

I would agree that a relist of common would be a very strong signal.

 

I also think that the FAs went into the pitches with a plan and showed a way to execute the plan.  this is a very lucrative mandate and it would be upsetting if GSEs let the bankers try to wing it

[Guest Covid-19_Survivor]

No more top ramen for shareholders?  8)

 

Freddie hires JP Morgan

Fannie hires Morgan Stanley

 

Posted at close 6/15 with many preferreds taking a small beating. Word to the wise, bad batter, Mr. Market's deeper knowledge is a fallacy. It doesn't know squat and its flippers will be inevitably left behind once we're approaching serious territory.

[orthopa]

Real vision today released a new fannie video with Gaby Hefesse

 

https://www.realvision.com/shows/the-interview/videos/a-sleeping-giant-opportunity-in-fannie-mae

 

Anyone have anyway to view?

[TonyG]

if you do a free trial, its a buck for 30 days i believe

[Guest cherzeca]

Gabby and Whitney? meh

[Luke 532]

Here is a suggestion for the weekend: let’s all be very very quiet and let JPM, MS, and Houlihan do their jobs as they interact with the Treasury, FHFA, and the sources of capital for recapitalization.  They get paid when we get paid. Just a thought.

[Guest cherzeca]

Here is a suggestion for the weekend: let’s all be very very quiet and let JPM, MS, and Houlihan do their jobs as they interact with the Treasury, FHFA, and the sources of capital for recapitalization.  They get paid when we get paid. Just a thought.

 

well as usual Tim is kinda right.  HL is getting paid no matter what.  as for MS and JPM, quite right though I haven't seen their engagement letters.

[DocSnowball]

Here is a suggestion for the weekend: let’s all be very very quiet and let JPM, MS, and Houlihan do their jobs as they interact with the Treasury, FHFA, and the sources of capital for recapitalization.  They get paid when we get paid. Just a thought.

 

A cryptic message? For who and why? Found the price drop in the last week a bit more bothersome than I should have. Still fundamentals have been solidly improving in the last year.

 

My base case is this drags on for another year or so before we find out our status, and I find it difficult to envision how the recap process can move forward without something reasonable being offered to Preferred holders.

[sholland]

Per the attached slide from Berkshire Hathaway Energy, utility regulators seem to aim for about a 10% ROE.  So if the twins have to hold ~$250B then net earnings available to common shareholders would need to be ~$25B.

 

The November 2018 Moelis Blueprint seems to assume a somewhat higher ROE.

 

Either way the g-fees will have to be increased. Is there political will to increase the g-fess even if there is a new administration next year?

[Guest cherzeca]

Per the attached slide from Berkshire Hathaway Energy, utility regulators seem to aim for about a 10% ROE.  So if the twins have to hold ~$250B then net earnings available to common shareholders would need to be ~$25B.

 

The November 2018 Moelis Blueprint seems to assume a somewhat higher ROE.

 

Either way the g-fees will have to be increased. Is there political will to increase the g-fess even if there is a new administration next year?

 

thanks for ROE comp.  do you think that because GSEs are so dominant with such large moats (albeit with political risk that likely will never go completely away but should be attenuated once release occurs) that a somewhat lesser ROE would be acceptable?

 

it seems that a bump in g fees is a foregone conclusion given this cap rule.  if Biden admin starts, I think it will have its own divisive arguments about what to do with the GSEs and how to react to what trump admin might have done at end of term (GSEs do that to people) but in principle everything that trump admin will have done (cap rule, g fee bump) can be reversed other than a release from conservatorship into consent decree phase.  conservatorship requires facts re GSEs solvency that will no longer be true, and I assume the consent orders will have provisions that insulate them from easy revision/termination

[sholland]

The November 2018 Moelis Blueprint assumed that the g-fees needed to be increased to 70 bps to earn an adequate ROE on $167B core capital.

 

If the GSEs need to hold $250B then using the same logic it seems the g-fees need to be increased to ~105 bps (Maybe more because the twins will want an administrative buffer too).

 

JPM and MS will undoubtedly voice opinions about where the g-fees need to be.

 

[Guest cherzeca]

"JPM and MS will undoubtedly voice opinions about where the g-fees need to be."

 

the most important comments on the proposed rule will be these, and they will be given orally at a meeting, not on the record.  The big issue in my mind is how stringent fhfa wants to be re the buffers...if fhfa hears form the bankers that the buffers need to be a later milepost, such that the risk/leverage standards are the first order of business say over next three years, then maybe everyone can end up with half a loaf.

[orthopa]

Here is a suggestion for the weekend: let’s all be very very quiet and let JPM, MS, and Houlihan do their jobs as they interact with the Treasury, FHFA, and the sources of capital for recapitalization.  They get paid when we get paid. Just a thought.

 

A cryptic message? For who and why? Found the price drop in the last week a bit more bothersome than I should have. Still fundamentals have been solidly improving in the last year.

 

My base case is this drags on for another year or so before we find out our status, and I find it difficult to envision how the recap process can move forward without something reasonable being offered to Preferred holders.

 

I have been adding more with the drop. I dont think we wait another year at all to find out status. Maybe for the first round of capital raises. Preferreds status will be known well before then. We finally have a hard/soft deadline in the election and capital levels in last PSPA agreement to push things along.

 

As hypothesized by some I think we do get a "big bang" type announcement.  PSPA amendment, announcement of recap plan, exercise of warrants, conversion of preferred to common based on prior 30 day trading range and likely reverse split.  I think if Trump loses election consent decree comes right after.

 

If the conversion ratio is right that maybe enough for preferred holders to settle. CET1 only counts common stock so I think any dividend payment talk past or future is meaningless to get out of conservatorship ASAP.  With common trading at $2-3 a share preferred holders can extract their pound of flesh that way. Treasury will exercise warrants before conversion so preferred holders not diluted by Treasury. If conversion is going to be main method of value extraction for preferred holders then any announcement affecting price will have to be under wraps until all at once like Citi.

 

As Tim alludes to this time period coming up maybe finally when the benefits of holding the preferred come to be seen. The sources of capital will surely include some of the biggest preferred holders and if the gov is serious about the recap ( hiring HL, MS, JPM serious enough?) then they need the big preferred holders blessing.

[orthopa]

Per the attached slide from Berkshire Hathaway Energy, utility regulators seem to aim for about a 10% ROE.  So if the twins have to hold ~$250B then net earnings available to common shareholders would need to be ~$25B.

 

The November 2018 Moelis Blueprint seems to assume a somewhat higher ROE.

 

Either way the g-fees will have to be increased. Is there political will to increase the g-fess even if there is a new administration next year?

 

thanks for ROE comp.  do you think that because GSEs are so dominant with such large moats (albeit with political risk that likely will never go completely away but should be attenuated once release occurs) that a somewhat lesser ROE would be acceptable?

 

it seems that a bump in g fees is a foregone conclusion given this cap rule.  if Biden admin starts, I think it will have its own divisive arguments about what to do with the GSEs and how to react to what trump admin might have done at end of term (GSEs do that to people) but in principle everything that trump admin will have done (cap rule, g fee bump) can be reversed other than a release from conservatorship into consent decree phase.  conservatorship requires facts re GSEs solvency that will no longer be true, and I assume the consent orders will have provisions that insulate them from easy revision/termination

 

Raising G fees also go towards Calabrias goal to opening up competition in the Market. I get the fact that g fees going up raises costs on homeowners but even a 2bps raise at today's' mortgage rates only raises the payment $11 a month on a 30 year $100,000 mortgage. If the $11 is preventing you from buying a house then....

[investorG]

@IG. so assume I am right and in seila scotus finds cfpb director must be at will, and voids the seila CID.  scotus logically would GVR collins to 5th C, at which point the big issue becomes not whether calabria can be fired (though HERA still states only for cause), but whether 5th C must give backward relief as well and void NWS.  fhfa could find ways to distinguish the seila CID from the collins NWS.  also, fhfa could distinguish itself from the cfpb in ways that make a direct read through from seila to collins inappropriate. again, I think this is a losing argument, but even losing arguments take time to lose.  this would require briefing/argument etc, and this would take time, and fhfa might have strategic reasons to string all of this out as long as possible.  frankly, if Biden wins, P shareholders might also want this to be strung out as long as possible if they think it will be in their interest

 

Thanks.  Let's say Seila rules that CFPB head can be fired by the prez and that Calabria fights that by suggesting FHFA is different than CFPB.  If Biden tries to fire Calabria in January who gets the benefit of the doubt -- Calabria gets to stay until it's resolved in the courts or Calabria has to leave and can come back if he wins in court?

 

status quo until court says otherwise.  of course Calabria might need to hire a bodyguard

 

I would think so.... But when Trump fired the CFPB director, she refused to leave, but left later anyway.

https://en.wikipedia.org/wiki/English_v._Trump

 

Why wouldn't the same happen to Calabria if Biden comes to power?

 

muscleman,

 

despite the optimism on this board, FA hires, sell side pumping, we're around 25% of par for most series. 

 

Any levels you are watching on the upside or downside TA - wise?

 

Your call on the 2019 top is becoming more legendary.