Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2482861 times)

merkhet

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8840 on: December 07, 2017, 08:42:11 AM »
why would treasury be cool with a plan that does not redound to common when it owns 80% of common?

Remember, they do not own 80% of the common. They have a provision that allows them to choose the timing of their dilution, which can come before or after a capital raise -- so it's a bit more nuanced than just owning 80% of the common. They own 80% of the common of NewCo, not 80% of the common of OldCo. There could be many steps between OldCo & NewCo.

Moreover, it's possible that OldCo common does okay while OldCo preferreds are made whole at par -- i.e. it's possible for Treasury to do well on its NewCo common while OldCo Common holders merely do okay.


rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8841 on: December 07, 2017, 08:59:33 AM »
Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

hmmm. lots to think about here.  especially since we don't know what mnuchin wants.

on one hand, he thinks extending jumpstart for a year is fine since he really does want to work with congress and avoid friction with the Republicans.

on the other hand, he could recoil from this, realizing he loses leverage in negotiations in 2018, and play chicken with Congress if they resist completing the govt funding or tax reform over this. he might also want to settle lawsuits with a 4th amendment, and this could scuttle that plan.

there's not a lot of volume in the lower price preferreds which tells me that the mkt doesn't fully buy this joe light article.

Lets see what the end of the day volume is on the preferred. Put in an order for the less liquid preferred and extremely hard to come by. Who would be selling with this news at these prices?

I try to think at things from multiple angles.

what if the joe light article was simply a way to grease through the jumpstart extension, and ultimately means little?

or what if the corker plan pays back preferreds but only over many years, which reduces the NPV?

I wouldn't be writing this if conveniently the jumpstart renewal didn't appear 12 hours after the Bloomberg article.
Did you even read that bill that was posted? It appears as an extension of 1 year BUT it actually tries to stop paying out money for the housing trust funds while assuming dividends will stop as well. What this bill (Corker/Warner) is trying to achieve is prevent Admin to nuke the Srs. because... my view, they want to do that in the housing reform bill and this little bill is a prelude to allow recapitalization and build up of capital. The original jumpstart was two lines. It only referred to tying up Treasury's hands. Had no language on anything else. This is much more than just an extension. It is already meddling with potentially a 4th amendment that will stop dividends.

There are still funds/retail that use any rally to unload. A bit disheartening.

@ Orthopa
that wayne comment wasn't nice. And we still don't know the end to this movie.

My view why Mnuchin is implicitly okeing all this. He said any reform comes after build up of capital. The above bill appears to:

a) give congress 1 more year for reform
b) strongly suggests fixing the coming zero net worth capital as it includes language of "not paying dividends".

we're not seeing this the same.

do you think mel watt is eager to stop funds to affordable housing if he withholds sweep dividends?  I don't.

I see this as an attempt to thwart any 4th amendment and continue the sweep until Congress acts, if they do.
It's all speculation at this point so yes, we differ :) My speculation is that there have been lots of talks behind the scenes and that Watt has also ok'd this jumpstart that stops monies to funds because he may believe reform is close at hand. Remember, even Hensarling said that any new bill should include provisions to affordable housing and that may include money sent to housing trusts. Since these are yearly payments, they may not miss any if a bill that includes the referred language is signed into law during 2018. Again, complete speculation based on this new jumpstart.

Based on this bill the scheme may look like this:

1. 4th A stops dividends. (Treasury/FHFA)
2. Reauthorization of jumpstart is signed into law: a) 1 more year for reform, b) no payments to housing trusts.
3. Recap begins and zero net worth is voided.
4. Reform begins: includes competition to FF (Fed Powell), paid-for narrow gov guarantee, eliminates the Sr. shares as paid out, reorganizes FF as reinsurers allowing GM to securitize. Includes affordable housing measures.
« Last Edit: December 07, 2017, 09:05:37 AM by rros »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8842 on: December 07, 2017, 09:21:05 AM »
why would treasury be cool with a plan that does not redound to common when it owns 80% of common?

Remember, they do not own 80% of the common. They have a provision that allows them to choose the timing of their dilution, which can come before or after a capital raise -- so it's a bit more nuanced than just owning 80% of the common. They own 80% of the common of NewCo, not 80% of the common of OldCo. There could be many steps between OldCo & NewCo.

Moreover, it's possible that OldCo common does okay while OldCo preferreds are made whole at par -- i.e. it's possible for Treasury to do well on its NewCo common while OldCo Common holders merely do okay.

the warrant ratchet is useful to prevent new issuances, not to facilitate them.  i would only point out that if raising new common is the goal, both the senior preferred outstanding and the warrant ratchet effectively prevent that.  so moving forward, you would think treasury, with experienced bankers at the top re GSE reform, will start to weigh in on what is practical on wall street.  committee staffers are unlikely to have this experience
« Last Edit: December 07, 2017, 09:31:49 AM by cherzeca »

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8843 on: December 07, 2017, 10:38:45 AM »
Reauthorization of jumpstart. You all thought Corker is nice all of a sudden. Told you so. If this passes, there is no hope. You can't trust Corker, Warner, Joe, Carney, Stevens, Fellow Travelers, they are all in the same pack. We all know that it has been 9 years, congress will not do anything. That means kicking the can down the road and Mnuchin leaves and all is finished here. Time is now or never.

Looks like screenshots from a bill (pulled from Twitter so can't verify it). See attached...

Is there anyway to block someone, this is getting tiresome.

no_free_lunch

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8844 on: December 07, 2017, 10:49:03 AM »
There is an ignore list in your profile.

Just go to Profile and then Summary.  From the page that pops up it is available if you hover over Modify Profile.
« Last Edit: December 07, 2017, 10:55:01 AM by no_free_lunch »

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8845 on: December 07, 2017, 10:52:46 AM »
There is an ignore list in your profile.

Thanks. I looked for an ignore option at one point but couldn't find it and gave up.

I like iHub's ignore feature better: both posts by the ignored member and replies to ignored member's posts are completely hidden in the message list. You would never even know they existed if it wasn't for skipped message numbers.

Here, though, I suppose it's better. At least the replies to an ignoramus are generally well thought-out.


no_free_lunch

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8847 on: December 07, 2017, 11:04:11 AM »
I am a little confused right now regarding Hensarling's intentions.  This article from American Banker states that he supports the Milken plan. The milken plan specifically states that they will reconstitute fannie and freddie.   However, he is simultaneously saying they need to be wound down.  Maybe he interprets Milken differently?

Quote
“I have been particularly encouraged by” the DeMarco-Bright proposal, Hensarling said. “Coupled with the basic tenets of the PATH Act, the DeMarco-Bright proposal creates another pathway under a better system to increase choice, help diversify risk and promote stability within the marketplace.”
..
That is one area where Hensarling does not appear ready to compromise. He emphasized Wednesday that any bill should eliminate Fannie and Freddie.

“To be clear, Fannie and Freddie must be wound down and their charters repealed,” he said. “I fear any plan to recap and release may very well constitute deja vu all over again.”

https://www.americanbanker.com/news/breaking-down-hensarlings-gse-reform-overture

Quote
Our proposal would end the conservatorships, reconstitute Fannie Mae and Freddie Mac as lenderowned mutuals, and build on the credit risk transfer (CRT) initiative to create a private market for mortgage credit risk while preserving a government-guaranteed rates market for mortgage-backed securities. Other firms could compete with Fannie and Freddie in the business of aggregating loans and gathering together the private capital that takes on housing risk ahead of the backstop government guarantee.
http://www.milkeninstitute.org/publications/view/823

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8848 on: December 07, 2017, 11:10:13 AM »
A link to HR 4560 (Jumpstart extention to 1/1/2019):
https://www.congress.gov/bill/115th-congress/house-bill/4560/actions

Given that this is a stand-alone bill it would have to be either eventually signed by Trump or gather a 2/3 majority to override a veto, neither of which seems very plausible.

If the House actually votes on it we will get a good idea of who FnF's friends and enemies are in the House, and if the Senate ever takes it up we will see their stripes too.

The original Jumpstart was attached as a rider to a spending bill, right? Do such riders usually start as stand-alone pieces of legislation? I don't know the answer but I would doubt it: riders like Jumpstart seem to be part of the negotiations and try to stay under the radar.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #8849 on: December 07, 2017, 11:10:36 AM »
https://www.congress.gov/bill/115th-congress/house-bill/4560?r=21

thanks, Emily.  I agree with your level of suspicion regarding this bill.  the joe light article could have been a decoy.   

the Congress is running for re-election before trump.  if mnuchin supports this bill, well then that's that.   if he does not because he'll tie his own hands, then we'll have to see if either a) congress can get a veto proof majority on the matter or b) the congressional Repubs want to fight on this by holding up taxes or the short term spending bills.