Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2530710 times)

rros

  • Hero Member
  • *****
  • Posts: 616
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10350 on: August 08, 2018, 09:50:35 AM »
Is the $33B of combined junior pref equity going to be too much? If so, will the companies selectively redeem some series, redeem them all, or offer a conversion to common? All of which could be followed by issuing new (junior) prefs to fine-tune the ratio.
Basel III (GSIB)
JPS effectively limited to 1.5% of RWAs (or ~$30bn) at minimum capital requirements
Moelis and FHFA: No limitations re JPS included in core capital. (Page 16)

Does this relate to your inquiry? Looks like 3 billion will have to go on Basel III?

* Thank you for the links, Luke.
« Last Edit: August 08, 2018, 09:53:10 AM by rros »


Luke 5:32

  • Hero Member
  • *****
  • Posts: 2222
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10351 on: August 08, 2018, 10:29:43 AM »
Tim Howard comments...

https://howardonmortgagefinance.com/2018/07/10/some-pre-comment-comments/comment-page-1/#comments

I just saw this. My initial reaction is that this very is good news for current investors in the companies’ securities, but less good news for mortgage borrowers and, potentially, the purchasers of the new equity the companies will issue if as Moelis advocates they are allowed build capital and released from conservatorship.

I’ve only skimmed the Moelis presentation–and will analyze it in much more depth shortly–but I already get its import: something very close to the capital proposal FHFA put out in June will be the “price” for getting the Financial Establishment (the banks and Wall Street firms, and also Treasury) to accept an administrative solution to mortgage reform in which the companies are allowed to emerge from conservatorship. I already suspected something as much when I saw that the risk-based capital numbers FHFA contortedly had backed into in its June proposal were very close to the capital numbers Moelis had advocated in its plan last year. And the statement they make in their Summary of Conclusions on page 7 leaves little doubt that this is the consensus “way out” for the companies: “The differences between FHFA’s rule and U.S. bank capital requirements, or the requirements proposed in the Moelis Blueprint, are minor, explainable and defensible.”

So this is the very good news: it looks as if a broad-based consensus has emerged on a path to getting Fannie and Freddie out of conservatorship, which will require settling the lawsuits.

I made three major criticisms of the FHFA capital proposal in my latest post: it is a mistake to align the Fannie-Freddie capital requirements with bank capital regulations (since the companies deal only in a single product whose losses are much less than the assets banks finance); the cushions FHFA has built into the risk-based standard, coupled with the countercyclical nature of that standard, will force Fannie and Freddie to hold large amounts of excess capital, which FHFA isn’t taking into account; and its treatment of CRTs is one-sided (not counting their expense), and thus gives Fannie and Freddie an incentive to substitute an inferior form of capital for a superior one.

Of these, Moelis only addresses the third. Again, I get not addressing the “bank-like capital” criticism–overcapitalizing the companies is the price that will have to be paid to get them out of conservatorship. The excessive conservatism of the risk-based standard is a different matter. I sent a note to the Moelis team about this the day I did my blog post, so I know they’re aware of the issue. I believe they either don’t agree with my analysis of it, or think if it becomes a problem FHFA can fix it later, by regulation. (If FHFA doesn’t fix this, I believe the “reformed” companies will have to price their new business in a way that will have a significant negative impact on their business volumes, and hence their value as going concerns.) I would lean toward the second explanation: let’s not put any obstacles in the path of getting a deal done. On CRTs, I see Moelis does think FHFA is giving the companies too much credit for them, and proposes giving less capital credit.

I’m going do more work on the risk-based capital dynamic (the fact that the way FHFA has structured the test will require much more capital just at the time that capital will be hard to come by, which I don’t think FHFA understands or intends), and address this in more detail in my comment letter to FHFA. And I’ll still make the point about the illogic (and damaging effect on mortgage rates) of using bank capital ratios for mortgages that have one-tenth the loss rates of the types of loans banks make, but I understand I’m not going to win that one.
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc

Midas79

  • Sr. Member
  • ****
  • Posts: 272
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10352 on: August 08, 2018, 12:36:15 PM »
An encouraging pricing sign: while pref share prices aren't moving a whole lot, there are relatively large orders (1000 shares and up) on the bid of nearly every series I follow. Perhaps someone is trying to get into the prefs at a good price, but isn't particular about which series.

Luke 5:32

  • Hero Member
  • *****
  • Posts: 2222
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10353 on: August 08, 2018, 01:46:52 PM »
Moelis met with FHFA two weeks ago

-Go here: https://www.fhfa.gov/SupervisionRegulation/RegulationFederalRegister/Pages/Commentonrule.aspx

-Search "Moelis"

Results:
Meeting on 7/26
Moelis uploads report 8/1

Two super interesting quotes (to me at least),
"Moelis is an independent investment bank, and is currently engaged as a financial advisor to certain non-litigating preferred shareholders in the GSEs" (page 6)

Seems to me to be more confirmation that non-litigating and litigating shareholders are in the same boat.

"This also follows the same general approach laid out in the Moelis Blueprint and is
consistent with GSE reform proposals put forward by other major market participants (e.g., the Mortgage Bankers Association)" (page 7)

If MBA doesn't come out against this plan in the coming day or two (really tonight as when they do voice their opinion it's usually immediate), then they really must have compromised on what they were seeking. I'm not surprised.  As you can see in my recent posts, the David Stevens mouthpiece (Paul Muolo of IMF) has been publishing very favorable quotes and stories the past few weeks.  This has been much more frequent than at any point in the past few years.
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc

rros

  • Hero Member
  • *****
  • Posts: 616
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10354 on: August 08, 2018, 03:53:51 PM »
Moelis met with FHFA two weeks ago

-Go here: https://www.fhfa.gov/SupervisionRegulation/RegulationFederalRegister/Pages/Commentonrule.aspx

-Search "Moelis"

Results:
Meeting on 7/26
Moelis uploads report 8/1

Two super interesting quotes (to me at least),
"Moelis is an independent investment bank, and is currently engaged as a financial advisor to certain non-litigating preferred shareholders in the GSEs" (page 6)

Seems to me to be more confirmation that non-litigating and litigating shareholders are in the same boat.

"This also follows the same general approach laid out in the Moelis Blueprint and is
consistent with GSE reform proposals put forward by other major market participants (e.g., the Mortgage Bankers Association)" (page 7)

If MBA doesn't come out against this plan in the coming day or two (really tonight as when they do voice their opinion it's usually immediate), then they really must have compromised on what they were seeking. I'm not surprised.  As you can see in my recent posts, the David Stevens mouthpiece (Paul Muolo of IMF) has been publishing very favorable quotes and stories the past few weeks.  This has been much more frequent than at any point in the past few years.
The non-litigating shareholder is, most likely, John Paulson. While we are all on the same boat, we may be in different cabins. Paulson might help the Jrs. achieve face value and dividend reinstatement, whereas litigating shareholders may help with a meaningful compensation for the alleged nationalization. Provided we prevail in court.

Midas79

  • Sr. Member
  • ****
  • Posts: 272
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10355 on: August 09, 2018, 08:00:40 AM »
If MBA doesn't come out against this plan in the coming day or two (really tonight as when they do voice their opinion it's usually immediate), then they really must have compromised on what they were seeking. I'm not surprised.  As you can see in my recent posts, the David Stevens mouthpiece (Paul Muolo of IMF) has been publishing very favorable quotes and stories the past few weeks.  This has been much more frequent than at any point in the past few years.

The date on the Moelis comment is August 1. If MBA was going to speak out against it, we would have heard it by now.

Luke 5:32

  • Hero Member
  • *****
  • Posts: 2222
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10356 on: August 09, 2018, 08:23:33 AM »
If MBA doesn't come out against this plan in the coming day or two (really tonight as when they do voice their opinion it's usually immediate), then they really must have compromised on what they were seeking. I'm not surprised.  As you can see in my recent posts, the David Stevens mouthpiece (Paul Muolo of IMF) has been publishing very favorable quotes and stories the past few weeks.  This has been much more frequent than at any point in the past few years.

The date on the Moelis comment is August 1. If MBA was going to speak out against it, we would have heard it by now.

That further drives the point home that MBA isn't balking at the Moelis plan.  Thank you.
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc

TwoCitiesCapital

  • Hero Member
  • *****
  • Posts: 1963
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10357 on: August 09, 2018, 10:04:45 AM »
If MBA doesn't come out against this plan in the coming day or two (really tonight as when they do voice their opinion it's usually immediate), then they really must have compromised on what they were seeking. I'm not surprised.  As you can see in my recent posts, the David Stevens mouthpiece (Paul Muolo of IMF) has been publishing very favorable quotes and stories the past few weeks.  This has been much more frequent than at any point in the past few years.

The date on the Moelis comment is August 1. If MBA was going to speak out against it, we would have heard it by now.

That further drives the point home that MBA isn't balking at the Moelis plan.  Thank you.

I'm not saying the two scenarios similar enough to bet on the outcome, but when the two sides stopped being at each other's throats publicly was the tell that a few days later a settlement had been reached in the MBIA case and the equity spiked.


SnarkyPuppy

  • Hero Member
  • *****
  • Posts: 619
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10358 on: August 09, 2018, 10:16:58 AM »
Sorry just jumping into the FHFA meeting news quickly on my phone (on vacation).  Did the source of the meeting (FHFA website?) disclose similar meetings with other commenters? Or was moelis the only group FHFA met w publicly?

Luke 5:32

  • Hero Member
  • *****
  • Posts: 2222
Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10359 on: August 09, 2018, 10:44:39 AM »
Sorry just jumping into the FHFA meeting news quickly on my phone (on vacation).  Did the source of the meeting (FHFA website?) disclose similar meetings with other commenters? Or was moelis the only group FHFA met w publicly?

https://www.fhfa.gov/SupervisionRegulation/RegulationFederalRegister/Pages/Commentonrule.aspx

Searched "meeting" and "meet" under Organization.

The two results are Moelis (7/26/18) and Andrew Davidson & Co. (6/21/18)

Davidson last year: http://knowledge.wharton.upenn.edu/article/why-competition-wont-lead-to-better-outcomes-for-fannie-mae-and-freddie-mac/
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc