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

[SnarkyPuppy]

fnmas is trading today like somebody knows something.  is that you MM?

 

Wait for the news to be published for MM to tell us retrospectively what we should have done based on his signals

[Luke 532]

fnmas is trading today like somebody knows something.  is that you MM?

 

Wait for the news to be published for MM to tell us retrospectively what we should have done based on his signals

 

SnarkyPuppy, I like your, um, snarky response  ;)

[typicalvalue]

Lastest from BI

[Guest cherzeca]

Lastest from BI

 

one may wonder why this now, but it has been pointed out that this liquidity point was one of the to-dos on the administration plan released over a year ago.  so if Mnuchin is playing school marm, I could see him with a checklist out, saying to Calabria "you haven't finished with your deliverables so I dont have to deliver mine yet..."

[COBFInfinity]

The GSE endgame has had some parallels to Avengers: Endgame for me.

 

AVENGERS TIMELINE

 

1. April 23, 2018; Avengers: Infinity War --> Stephen Strange: "We're in the Endgame now."

 

2. April 26, 2019; we wait a year to get the first "Big Bang" in Avengers: Endgame. These are my current feelings and fears.

 

 

NATASHA ROMANOFF: This is gonna work, Steve.

 

STEVE ROGERS: I know it will. Cause I don't know what I'm going to do if it doesn't.

 

 

3. A few minutes later, Act I ends. Their plan didn't work. Transition to Act II reads, "FIVE YEARS LATER."

******

 

Comparable GSE TIMELINE?

 

1. May 8, 2019; GSE Endgame signaled --> Bloomberg reports "He (Calabria) brushed off concerns about the legality of Treasury’s net-worth sweep, which is the focus of legal challenges. “I think that if we can get them out of conservatorship and then we can set a path, I think a lot of those issues will go away,” he said.

 

2. December 2020; PSPA Amendment?

 

3. Five years later?  :-\

[orthopa]

Last time FnF traded like this was before capital rule was released. Like many in this thread I have been conditioned to think another disappointment is on the horizon so we will see. For the investigative types mnuchin is taking a trip overseas in early January so some have ear marked today/early mid january as possible dates this goes though. We will see.

[COBFInfinity]

Last time FnF traded like this was before capital rule was released. Like many in this thread I have been conditioned to think another disappointment is on the horizon so we will see. For the investigative types mnuchin is taking a trip overseas in early January so some have ear marked today/early mid january as possible dates this goes though. We will see.

 

Does it really matter where Mnuchin is? Everything could be wrapped up, but they might wait for a specific date to actually release the news. Not sure if it matters where Mnuchin is at that point, as long as he's still alive. And yes, I have worried about whether Mnuchin or Calabria dies before a PSPA amendment!

[orthopa]

Last time FnF traded like this was before capital rule was released. Like many in this thread I have been conditioned to think another disappointment is on the horizon so we will see. For the investigative types mnuchin is taking a trip overseas in early January so some have ear marked today/early mid january as possible dates this goes though. We will see.

 

Does it really matter where Mnuchin is? Everything could be wrapped up, but they might wait for a specific date to actually release the news. Not sure if it matters where Mnuchin is at that point, as long as he's still alive. And yes, I have worried about whether Mnuchin or Calabria dies before a PSPA amendment!

 

Thats true but if this goes through when he is in the middle east it may look a little weird. It is 2020 though so who knows! I have thought about the death angle but thank god for lackeys below.

[COBFInfinity]

Last time FnF traded like this was before capital rule was released. Like many in this thread I have been conditioned to think another disappointment is on the horizon so we will see. For the investigative types mnuchin is taking a trip overseas in early January so some have ear marked today/early mid january as possible dates this goes though. We will see.

 

Does it really matter where Mnuchin is? Everything could be wrapped up, but they might wait for a specific date to actually release the news. Not sure if it matters where Mnuchin is at that point, as long as he's still alive. And yes, I have worried about whether Mnuchin or Calabria dies before a PSPA amendment!

 

Thats true but if this goes through when he is in the middle east it may look a little weird. It is 2020 though so who knows! I have thought about the death angle but thank god for lackeys below.

 

I have no idea who the lackeys are or whether they would sign off.

[muscleman]

fnmas is trading today like somebody knows something.  is that you MM?

 

Wait for the news to be published for MM to tell us retrospectively what we should have done based on his signals

 

SnarkyPuppy, I like your, um, snarky response  ;)

 

I am here to make money, not to use the thread as a time killer.

The signal remains no buy.

 

[beaufort]

There is some debate as to whether Mnuchin will amend the PSPAs with finality or simply raise the amount that FnF can hold, offset the same amount in the liquidation preference.

 

Mnuchin is quoted to have said he is likely to amend the PSPAs.  He is deliberate with his words and knows what likely means.

 

The previous change to retained earnings of 20B and 25B was done by way of 'letter agreement' which is of course a different term than 'amendment to PSPA'. 

 

The change in the use of terms to me is significant, along with all of the other information we have so far.  If the change was simply increasing the retained earnings held by FnF and offset by an increase in liquidation preference, I think Mnuchin would use the words amend the letter agreement. 

[Guest cherzeca]

There is some debate as to whether Mnuchin will amend the PSPAs with finality or simply raise the amount that FnF can hold, offset the same amount in the liquidation preference.

 

Mnuchin is quoted to have said he is likely to amend the PSPAs.  He is deliberate with his words and knows what likely means.

 

The previous change to retained earnings of 20B and 25B was done by way of 'letter agreement' which is of course a different term than 'amendment to PSPA'. 

 

The change in the use of terms to me is significant, along with all of the other information we have so far.  If the change was simply increasing the retained earnings held by FnF and offset by an increase in liquidation preference, I think Mnuchin would use the words amend the letter agreement.

 

I think two things:  Mnuchin has no reason that I can think of to screw around. once he says he will likely amend PSPA and put GSEs on a path to raising capital, then I think he will write down SP.  if he doesn't then he hasn't put the GSEs on any path, he has simply handed the whole problem to Yellen.  second, Mnuchin went out of his way to dissociate himself from consent decrees, but I think he did this because he knows Calabria will want to do this, and Mnuchin is essentially saying to Calabria, this is your airplane once I amend the PSPA. if the mbs market screws up (and it wont because the line of credit will still be intact), it wont be my fault.

 

the problem is much of what we can really rely on for information is filtered through WSJ/BBG/Gasparino.  while Calabria and Mnuchin do speak directly at times, they have a way of engaging in doublespeak....and they want to leave themselves an option to squirm around, not box themselves in. 

 

[WB_fan82]

The only reason to write down SP is if urgency is a priority on the recap.  Hasn't every single thing to date screamed out that urgency is NOT a priority for Mnuchin on the recap?

 

He can definitely keep the SP outstanding and make a series of other changes that put them on track for real retention over time and the ability to raise third party capital.  Namely:  remove NWS, establish a fixed dividend, make the SP non-cum, make them repayable, and remove TSY approval to a consent decree.  That still protects the taxpayer by not giving away all that liquidation preference.

 

What self respecting multi centi millionaire would do such a bad financial deal for the taxpayer to just hand over all those billions to people with zero leverage?

[orthopa]

There is some debate as to whether Mnuchin will amend the PSPAs with finality or simply raise the amount that FnF can hold, offset the same amount in the liquidation preference.

 

Mnuchin is quoted to have said he is likely to amend the PSPAs.  He is deliberate with his words and knows what likely means.

 

The previous change to retained earnings of 20B and 25B was done by way of 'letter agreement' which is of course a different term than 'amendment to PSPA'. 

 

The change in the use of terms to me is significant, along with all of the other information we have so far.  If the change was simply increasing the retained earnings held by FnF and offset by an increase in liquidation preference, I think Mnuchin would use the words amend the letter agreement.

 

FWIW the letter agreement had this to say:

 

The Enterprise and Treasury agree to negotiate and execute an additional amendment to the

Agreement that further enhances taxpayer protections by adopting covenants broadly consistent

with recommendations for administrative reform contained in Treasury's September 2019

Housing Reform Plan, in further consideration for the amendment contained in Part I of this

agreement.

 

https://home.treasury.gov/system/files/136/9-27-19%20_FNMA%20Capital%20Agreement_0.pdf

 

 

Granted things can change but they have followed the treasury plan to a "T" and "an additional" amendment does not sound like just increasing amount of retained capital precluding another amendment.

 

Per the treasury housing reform plan there is "Adjusting the variable dividend on Treasury’s senior preferred shares so as to allow the GSE to retain earnings in excess of the $3 billion capital reserve currently permitted." The letter agreement came out after the Treasury reform plan so I believe we have to go off of the language of the letter agreement above.

 

For this reason I believe its one and done and don't see evidence of it going any other way.

 

[orthopa]

The only reason to write down SP is if urgency is a priority on the recap.  Hasn't every single thing to date screamed out that urgency is NOT a priority for Mnuchin on the recap?

 

He can definitely keep the SP outstanding and make a series of other changes that put them on track for real retention over time and the ability to raise third party capital.  Namely:  remove NWS, establish a fixed dividend, make the SP non-cum, make them repayable, and remove TSY approval to a consent decree.  That still protects the taxpayer by not giving away all that liquidation preference.

 

What self respecting multi centi millionaire would do such a bad financial deal for the taxpayer to just hand over all those billions to people with zero leverage?

 

How is it a bad deal if the GSEs have been paid back. If you don't feel like Treasury has been paid back, and the SP doesn't get written down I struggle to see why your still invested to this? Everyone is allowed to have a view, but if this view was mine I would pass on the investment.

[COBFInfinity]

I've been pondering the question of how does Mnuchin justify writing down any of the Senior Preferred without blowback. I'm sure someone else has had these thoughts long ago (investment banking types), but maybe it is easier than I thought to justify a significant, though partial, writedown that is backed by the economics.

 

The following is a very simple balance sheet perspective (i.e., not going to get me a job as an investment banker).

 

Imagine a perpetual scenario with Sr Pfd/NWS (not hard to do, right?) The capital structure is impacted as follows:

*Jr Pfd is wiped out

*Common stock (and importantly, warrants) is wiped out

 

 

Now imagine a scenario where the Sr Pfd is paid off and the companies are recapitalized:

*All decreases in Sr Pfd accrue dollar for dollar to Jr Pfd until Jr Pfd is worth par

*Then, all decreases in Sr Pfd accrue dollar for dollar to Common stock

*79.9% of Common stock value accrues to Treasury warrants

 

So let's look at Fannie Mae as of 9/30:

*$138 B Sr Pfd

*$19.13 B Jr Pfd, but currently worth $0

*Common Stock, worth $0

*Tsy Warrants, worth $0

*Total Value of Tsy investments, $138 B

 

Now we'll look at a scenario where the Sr Pfd is written down to $0:

*$0 Sr Pfd

*$19.13 B Jr Pfd, worth $19.13

*Common Stock, worth $118.87

*Tsy Warrants, worth $95.096

*Total Value of Tsy investments, $95.096 B

 

Now, Tsy is going to say it is not going to give up value for nothing, so FNMA issues a new Sr Pfd to Tsy at no cost, par value of $42.904 B and a market-based coupon (which should be very low). Result is an end to NWS and a substantial reduction in Sr Pfd, but Tsy's investment is, on paper, unchanged. Yet, the GSEs now have a path to recapitalization without settling the lawsuits or admitting there was ever a problem with the NWS. As Calabria said, maybe the lawsuits just "go away" at that point.

 

As I said, this is too simple to just move around balance sheet numbers, but I can imagine the GSE investment bankers being tasked with estimating the value of the common stock in fully recapitalized entities and then Tsy uses those as offsets to write down some of the Sr Pfd. They could reasonably come close to my scenario if they wanted to (hint, hint).

 

Alright, someone poke holes in this.

[WB_fan82]

The idea that the government "has been paid back" is kind of a fiction.  Under the terms of the sr pfd, pre or post NWS, the GSEs simply cannot pay them back.  More importantly, nobody in the administration has floated that idea.

 

It's a squishy justification of a writedown, and I'm back to my previous post.  Mnuchin doesn't need to do such an embarrassing thing to accomplish his objectives, so why on earth would he?

 

The courts can decide whether there are $125B of overages from the NWS.  Hopefully they say yes and award substantial interest.

 

The reason I own common and pref securities is the GSEs are intrinsically incredibly valuable and I trust that Mnuchin will get us from here to there.  It doesn't really matter whether it's a decade of retained earnings or 7,5,3,2 years.  The investments work.  The only way this doesn't work is if Mnuchin just keeps NWS, removes the caps, and retains the power to approve consent decree at TSY.  Or Biden fires MC "for cause" and we have a pointless power struggle.  And even then, we have outs with the courts (though I think Collins is an ultimate loser, sadly).

[COBFInfinity]

The idea that the government "has been paid back" is kind of a fiction.  Under the terms of the sr pfd, pre or post NWS, the GSEs simply cannot pay them back.  More importantly, nobody in the administration has floated that idea.

 

It's a squishy justification of a writedown, and I'm back to my previous post.  Mnuchin doesn't need to do such an embarrassing thing to accomplish his objectives, so why on earth would he?

 

The courts can decide whether there are $125B of overages from the NWS.  Hopefully they say yes and award substantial interest.

 

The reason I own common and pref securities is the GSEs are intrinsically incredibly valuable and I trust that Mnuchin will get us from here to there.  It doesn't really matter whether it's a decade of retained earnings or 7,5,3,2 years.  The investments work.  The only way this doesn't work is if Mnuchin just keeps NWS, removes the caps, and retains the power to approve consent decree at TSY.  Or Biden fires MC "for cause" and we have a pointless power struggle.  And even then, we have outs with the courts (though I think Collins is an ultimate loser, sadly).

 

You're ignoring all the clues we've received in the last two years, starting with Joseph Otting saying in January 2019 that Calabria had "signed off" on the White House's reform plan. While all the details were not clear at the time and viewpoints may have changed, I do believe that Mnuchin and Calabria were on the same page as to whatever the plan was. A few months later, Calabria said he thought the lawsuits would "go away" based on whatever changes would occur based on this plan.

 

So you've just laid out a scenario in which the lawsuits definitely do not go away. Therefore, it does not match the plan they have alluded to many times. This would seem to imply two possibilities. 1) The plan changed and we can not rely on prior comments by Mnuchin and Calabria. 2) Mnuchin and Calabria were lying about their intentions all along.

 

Given that either of these possibilities should result in you having no confidence in what Mnuchin and Calabria will do, your view doesn't make much sense to me.

[undervalued]

The idea that the government "has been paid back" is kind of a fiction.  Under the terms of the sr pfd, pre or post NWS, the GSEs simply cannot pay them back.  More importantly, nobody in the administration has floated that idea.

 

It's a squishy justification of a writedown, and I'm back to my previous post.  Mnuchin doesn't need to do such an embarrassing thing to accomplish his objectives, so why on earth would he?

 

The courts can decide whether there are $125B of overages from the NWS.  Hopefully they say yes and award substantial interest.

 

The reason I own common and pref securities is the GSEs are intrinsically incredibly valuable and I trust that Mnuchin will get us from here to there.  It doesn't really matter whether it's a decade of retained earnings or 7,5,3,2 years.  The investments work.  The only way this doesn't work is if Mnuchin just keeps NWS, removes the caps, and retains the power to approve consent decree at TSY.  Or Biden fires MC "for cause" and we have a pointless power struggle.  And even then, we have outs with the courts (though I think Collins is an ultimate loser, sadly).

 

There is an WSJ opinion 2 days ago - https://www.wsj.com/articles/the-continuing-saga-of-fannie-and-freddie-11608480578

[typicalvalue]

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Issues-Notice-of-Proposed-Rulemaking-on-Enterprise-Resolution-Plans.aspx

[undervalued]

Nothing is stopping this train https://outline.com/2FL4Kg

[orthopa]

The idea that the government "has been paid back" is kind of a fiction.  Under the terms of the sr pfd, pre or post NWS, the GSEs simply cannot pay them back.  More importantly, nobody in the administration has floated that idea.

 

It's a squishy justification of a writedown, and I'm back to my previous post.  Mnuchin doesn't need to do such an embarrassing thing to accomplish his objectives, so why on earth would he?

 

The courts can decide whether there are $125B of overages from the NWS.  Hopefully they say yes and award substantial interest.

 

The reason I own common and pref securities is the GSEs are intrinsically incredibly valuable and I trust that Mnuchin will get us from here to there.  It doesn't really matter whether it's a decade of retained earnings or 7,5,3,2 years.  The investments work.  The only way this doesn't work is if Mnuchin just keeps NWS, removes the caps, and retains the power to approve consent decree at TSY.  Or Biden fires MC "for cause" and we have a pointless power struggle.  And even then, we have outs with the courts (though I think Collins is an ultimate loser, sadly).

 

Maybe Im belaboring the point but Phillips has publicly stated the Sr Preferred were paid down, preferred should be exchanged, warrants exercised etc. He was out of the admin when he publicly said this so maybe these are his own views but he was also in charge of spearheading the GSE topic within treasury for what that is worth. Coincidence or not his public statements do match options in the treasury plan.

 

As mentioned above we very well could have been lied to but I don't see who benefits in that situation? Who comes out on top if Phillips, Otting, Calabria, and Mnuchin are lying publicly? No doubt Stevens, Whalen, Sherrod, Maxine, etc would be happy but Im not sure if thats better then who would be happy otherwise.. But if that was the end game what was the point of the whole charade? What a waste of time.

 

No question no view point is set in stone and are all valid at this point. We continue to wait and see.

[Wiggins]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

[Guest cherzeca]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

[Wiggins]

If January 21st rolls around and absolutely nothing more has happened, then what are the JPS worth?

 

how do you think collins is decided?

 

ranked most to least likely

1) remand (win) on APA and no backwards relief on constitutional

2) immediate relief on constitutional

3) loss on both