Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2943117 times)

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11920 on: March 13, 2019, 12:04:22 PM »
For what it's worth...

@CGasparino
SCOOP: @WhiteHouse pushing expedited Senate confirmation of new FHFA Chief @MarkCalabria in next 2 weeks to jump-start GSE reform; Calabria likely to take a “scalpel” to GSEs reducing footprint in housing mkt seek Congress approval before ending conservatorship more @FoxBusiness


Any thoughts on what approval from congress looks like? Surely they can only implicitly approve it by not explicitly denying it?
Too few words a-la-twit by Gasparino. But it could mean "scalpel" as in really cautious or little, delicate approach... no-big-plan-nothing-to-worry-about. And approval to end c-ship may mean Calabria will seek some comprehensive legislation that will include wrapping things up. Meanwhile, it is possible he will simply recapitalize -partially or totally- the entities. And in the time frame required for this, work with Congress.

RE increasing liquidation pref of Srs. by having FF retain full earnings. Why worry? When Watt/Tsy agreed to it the Jrs. ran. What matters really is that money stays with the companies regardless of how much Srs. balance increases. Why? Because if Srs. find -somehow- their way to the toilette, the money is already with FF.

the flaw with moelis - and why it's likely just a marketing document to help draw attention to the matter - is that investors are unlikely to front the many tens of billions necessary for recap in a series of equity offerings without A) congressional stamp (permanence) or B) exit from conservatorship whereby the company's mgmt and boards are in charge.  Or both A and B.   And Mnuchin doesn't want to risk failure, the stakes are too high, which is likely one reason why he's acted so timidly on the matter.

IMO the one exception to this view is if one or a couple large entities writes a giant check ($25-50bn) overnight at a low price that 1) gets the companies so far down the recapitalization path that its hard to turn back and 2) has such attractive risk-reward profile (ie low stock price) that the upside potential is so great to risk the investment losing material money if political (or economic) winds turn at some point in the future. 

If this scenario is even legally and logistically possible, where a huge chunk is raised overnight private equity style, then the returns to shareholders and govt warrants are likely reduced well below moelis numbers.   Otherwise, I'm prepared for Congress (and perhaps Calabria if confirmed) to possibly play a larger role than expected.
It is always difficult to tell whether you are gloomy, optimistic, outright negative, long or short. Not that it matters. But sometimes I am not sure where you are coming from. Though you have been very informative (thanks).

I believe the shares are undervalued.  How much so likely depends on the Collins ruling imo.  The Sweeney and Lamberth situations are too uncertain and too far away for the plaintiffs to rely on.  The constitutional angle (including Collins and Bhatti and Rop) seem like long shots.  Thus, I expect current price goals of the main players in terms of a potential 'deal' to stay close to par value if we win Collins outright (and govt doesn't appeal?) and come down to 50-75pct of par if we lose.  for common, collins is also crucial because a loss could lead to sr pref monetization in the form of extra govt shares and dilution, and vice versa.
Thank you for taking the time to clarify your position.

If I were a new investor with billions at stake I would absolutely want Congress involvement. I would want Congress to assure me in a bipartisan bill/law that I will never ever hear from them again when it comes to the GSEs.


cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11921 on: March 13, 2019, 12:11:25 PM »
who has more political risk right now, WFC or GSEs? extra credit if you show your work

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11922 on: March 13, 2019, 10:57:42 PM »
I see. So let me ask you this. Do you think FnF will be recapitalized and released from conservatorship?

Yes I do, but I have been wrong over and over on fundamentals and I don't place much value on my ability to do fundamental analysis anymore. But as other members pointed out, recap and release may require congressional approval if they want to find $150 bn. The alternative is to just let these companies retain earnings. My guess is that by 3/31, Calabria will announce a plan to retain earnings, but increase senior preferred liquidation value by the same amount. Then nothing will happen for a few months. Then Collins ruling came out, and it will be either big win or big loss for investors.
Before the Lamberth ruling, there was clear technical sign of topping, though Perry ruling came out of nowhere. So there are definitely people who know or smart enough to guess out what's gonna happen, and act in advance.
« Last Edit: March 13, 2019, 11:08:40 PM by muscleman »

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11923 on: March 13, 2019, 11:11:33 PM »
Does anyone know any news today? FNMAS and FMCKJ both had a quick spike up of 6-7% in the middle of the day, though they both closed near the low.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11924 on: March 14, 2019, 08:53:29 AM »
Its my understanding McConnell may move forward with the Senate nomination of Calabria today.

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11925 on: March 14, 2019, 10:35:48 AM »
Its my understanding McConnell may move forward with the Senate nomination of Calabria today.

Thank you! When will we know for sure?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11926 on: March 14, 2019, 11:52:07 AM »
Its my understanding McConnell may move forward with the Senate nomination of Calabria today.

it's been calendared for awhile but I see no movement

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11927 on: March 14, 2019, 12:49:15 PM »
who has more political risk right now, WFC or GSEs? extra credit if you show your work

so my point here is that all banks have some political risk (which is why they spend so much on lobbying), and Wells Fargo has a huge amount of political risk....and WFC is going to chug along just fine (though its execs may get bitch slapped)

just thinking if GSEs are along this same continuum of political risk or just in a qualitatively worse position. I ask this now, assuming that the wind down the GSE movement is dead.

Ahab

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11928 on: March 14, 2019, 01:32:14 PM »
I would argue that the GSEs have far more near-term political risk as an investment than the big banks. However, assuming a recap occurs, I believe the opposite will become true. Every couple of years banks such as WFC are involved in some sort scandal or untoward activity. LIBOR rigging, banking for the cartels, and opening up accounts without consumers' knowledge are the kind of improprieties that end up on CNN, HuffPo, etc... With Fannie & Freddie by contrast, most Americans don't really know what they do or have emotionally intense opinions about them. Thus, in the long run, I envision Fannie and Freddie having less political risk than say WFC.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11929 on: March 14, 2019, 01:59:41 PM »
@ahab

Fair enough. Now for the GSEs in the short term does your thinking change if you consider that for the next 5 years the fhfa Director is someone who has made clear, and let’s say reiterates, that the NWS is illegal?