Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2633292 times)

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9110 on: January 10, 2018, 08:28:31 AM »
Blank or not blank doesn’t really matter. I am certain that a bill with name of warner and corker will not pass. They are not to put a bill through on their way out when they couldn’t do it in the last 8 years.

republican retirements keep rolling in.  odds sites have chances of Democratic House in 2019 nearly two in three.  are 9 Democratic senators going to agree on something that appeases Jeb henserling when they could wait a year and deal with Maxine Waters?   possible, I guess, if they are bribed enough.  but becoming increasingly likely that another year goes by without action, imo.


Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9111 on: January 10, 2018, 09:39:22 AM »
republican retirements keep rolling in.  odds sites have chances of Democratic House in 2019 nearly two in three.  are 9 Democratic senators going to agree on something that appeases Jeb henserling when they could wait a year and deal with Maxine Waters?   possible, I guess, if they are bribed enough.  but becoming increasingly likely that another year goes by without action, imo.

At this point I'm starting to think that Mnuchin is just going to sit on his hands until next January, with the only small action being a special allowance for Fannie's DTA writedown in the vein of the 4th amendment from last month (advance them enough money to keep above water, increase liquidation preference, don't call it a draw). Allowing the GSEs to recap, retiring the seniors, etc. would piss off a lot of Republicans in Congress and Trump is already having enough trouble getting them on board with his agenda. Especially in the Senate where the majority is razor thin.

If the Democrats gain control of Congress then no bill will be necessary. Recap and release, with FHFA being a strong regulator not allowing the GSEs to be run like hedge funds, would likely be pleasing to the Democrats. It really would be a bipartisan solution: Mnuchin never said that the Republican half of bipartisan support had to be in Congress.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9112 on: January 10, 2018, 10:07:36 AM »
republican retirements keep rolling in.  odds sites have chances of Democratic House in 2019 nearly two in three.  are 9 Democratic senators going to agree on something that appeases Jeb henserling when they could wait a year and deal with Maxine Waters?   possible, I guess, if they are bribed enough.  but becoming increasingly likely that another year goes by without action, imo.

At this point I'm starting to think that Mnuchin is just going to sit on his hands until next January, with the only small action being a special allowance for Fannie's DTA writedown in the vein of the 4th amendment from last month (advance them enough money to keep above water, increase liquidation preference, don't call it a draw). Allowing the GSEs to recap, retiring the seniors, etc. would piss off a lot of Republicans in Congress and Trump is already having enough trouble getting them on board with his agenda. Especially in the Senate where the majority is razor thin.

If the Democrats gain control of Congress then no bill will be necessary. Recap and release, with FHFA being a strong regulator not allowing the GSEs to be run like hedge funds, would likely be pleasing to the Democrats. It really would be a bipartisan solution: Mnuchin never said that the Republican half of bipartisan support had to be in Congress.

this is now my base case view, mostly.  (I believe reform, like turning them into utilities, would need to be added to any potential recap / release in 2019).   but I also expect that corker will try to get something through committee at least in 1h 2018.  the bank lobby is likely pushing hard.

one potential wild card in this scenario: could mnuchin, now that the original 10pct loans have been paid off, make a 4th amendment that ends sweep, retires snr preferred, and puts in it's place an explicit fee paid by the GSEs for the Tsy backstop?  this fee would naturally be lower than the full sweep earnings, but the rationale would be mnuchin believes FnF are not going away, and even if Congress is taking its time on the reform, it's best to get going on some capital build as they'll need it eventually.   maybe this would settle some lawsuits too? 

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9113 on: January 10, 2018, 10:08:45 AM »
On another note, Trump is trying to get the ball rolling on an infrastructure plan. This could be his next major policy goal.

http://fortune.com/2018/01/10/us-infrastructure-spending/

Quote
Congress would need to find a way to fund an expensive infrastructure package and the cost could cause both Democrats and Republicans to oppose the legislation.

Trump wants $1 trillion. If Merkhet's idea works out, the government could potentially put up $200B and get the private sector to pledge the other $800B. If $100B comes from exercising the warrants and selling the shares (which would require recap and release to make the shares valuable enough) then the government could get a 10x multiplier on its commitment. Telling Congress that they can get $1T worth of infrastructure for $100B is a great way to build political capital, the amount Trump would lose from pissing off Rs about the GSEs notwithstanding.

In my opinion that also skews the risk/reward towards the commons. If 80% of the companies are worth $100B then the remaining 20% is worth $25B. Given the current combined market cap of around $5B that's 400% upside. FNMAS, even if you assume it later trades at a 20% premium to par due to high dividends and call protection, has 275% upside at the moment (120% of par is $30, current share price of $8, potential gain of $22, 22/8 = 2.75). Less liquid and lower dividend series have similar upsides: something like FNMAK at 95% of par has an upside of 239%.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9114 on: January 10, 2018, 10:22:13 AM »
On another note, Trump is trying to get the ball rolling on an infrastructure plan. This could be his next major policy goal.

http://fortune.com/2018/01/10/us-infrastructure-spending/

Quote
Congress would need to find a way to fund an expensive infrastructure package and the cost could cause both Democrats and Republicans to oppose the legislation.

Trump wants $1 trillion. If Merkhet's idea works out, the government could potentially put up $200B and get the private sector to pledge the other $800B. If $100B comes from exercising the warrants and selling the shares (which would require recap and release to make the shares valuable enough) then the government could get a 10x multiplier on its commitment. Telling Congress that they can get $1T worth of infrastructure for $100B is a great way to build political capital, the amount Trump would lose from pissing off Rs about the GSEs notwithstanding.

In my opinion that also skews the risk/reward towards the commons. If 80% of the companies are worth $100B then the remaining 20% is worth $25B. Given the current combined market cap of around $5B that's 400% upside. FNMAS, even if you assume it later trades at a 20% premium to par due to high dividends and call protection, has 275% upside at the moment (120% of par is $30, current share price of $8, potential gain of $22, 22/8 = 2.75). Less liquid and lower dividend series have similar upsides: something like FNMAK at 95% of par has an upside of 239%.

they just had a summit on infrastructure, it likely would have leaked by now if the intention was to use the warrants.  also, it's probably not good public policy to let monetizing warrants drive the bus on the future of housing finance rather than letting any warrant recovery value be a nice secondary benefit of whatever they ultimately decide, if it does lead to any value. i wish i am wrong but I doubt it.

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9115 on: January 10, 2018, 01:41:40 PM »
Question for those who feel that shareholders will be treated favorably in exchange for dropping lawsuits-

Is there a realistic scenario whereby all future litigation risk is removed from the government?   Even in a recap/release whereby warrants are exercised- would there not be a new set of lawsuits raised against the government regarding the legality of the warrants?

You can't say this is an unlikely outcome while simultaneously thinking that the legal route (the spefific legal route challenging HERA constitutionality) is viable.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9116 on: January 11, 2018, 04:46:50 AM »
Question for those who feel that shareholders will be treated favorably in exchange for dropping lawsuits-

Is there a realistic scenario whereby all future litigation risk is removed from the government?   Even in a recap/release whereby warrants are exercised- would there not be a new set of lawsuits raised against the government regarding the legality of the warrants?

You can't say this is an unlikely outcome while simultaneously thinking that the legal route (the spefific legal route challenging HERA constitutionality) is viable.

throwing the hera constitutional challenge is probably just a tactic to make them realize how egregious the NWS was.  if a judge is ever sympathetic to shareholders and justice, then it's more likely they reverse the sweep than throw out hera.

I don't think they could remove all future litigation risk but they could remove lots of it with a 4th amendment, imo.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9117 on: January 11, 2018, 07:02:52 AM »
Question for those who feel that shareholders will be treated favorably in exchange for dropping lawsuits-

Is there a realistic scenario whereby all future litigation risk is removed from the government?   Even in a recap/release whereby warrants are exercised- would there not be a new set of lawsuits raised against the government regarding the legality of the warrants?

You can't say this is an unlikely outcome while simultaneously thinking that the legal route (the spefific legal route challenging HERA constitutionality) is viable.

I have seen this part brought up in several places. At this point I don't see why the warrants are illegal or on what grounds a lawsuit would be brought if they were exercised. Certainly anyone who bought shares after the conservatorship already knew about the existence (and thus possible future exercise) of the warrants.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9118 on: January 11, 2018, 08:11:52 AM »
Question for those who feel that shareholders will be treated favorably in exchange for dropping lawsuits-

Is there a realistic scenario whereby all future litigation risk is removed from the government?   Even in a recap/release whereby warrants are exercised- would there not be a new set of lawsuits raised against the government regarding the legality of the warrants?

You can't say this is an unlikely outcome while simultaneously thinking that the legal route (the spefific legal route challenging HERA constitutionality) is viable.

I have seen this part brought up in several places. At this point I don't see why the warrants are illegal or on what grounds a lawsuit would be brought if they were exercised. Certainly anyone who bought shares after the conservatorship already knew about the existence (and thus possible future exercise) of the warrants.

I dont think the warrants were illegal and I think to contest the legality of the bailout you have to put yourself in the time and place of what was going on . It will be a high bar to hurdle that it was completely illegal when you had BAC, WFC, C, GS, GE, Dupont, GM, etc etc needing a bailout from the gov or WEB. Every day there was talk of a huge financial institution possible going belly up needing gov support. Gov got warrants for nearly all of those bailouts too.

The Net Worth sweep a different story, different time, different place. I believe this is also why Berk isn't contesting the original bailout. Way to difficult to say it was illegal at that time.

Im trying to think but cant think of a mechanism that could preclude any more lawsuits in a newco or recapitalized company. If the gov exercises the warrants that means common still exists. I'm sure there is something that you holding common past a certain date or after restructuring would preclude you from suing. Such as accepting shares in the new company or cash selling the shares in the open market as a payout after gov exercises warrants. Who wouldn't accept either, or sell out of shares early with full notice and carry on a lawsuit?  That doesn't of course mean you love the return you would get though.

I think treating pfd favorably is a whole different world then common treated favorably. Prf getting treated favorably would mean par and maybe a div. Common treated fairly would mean you just don't get completely wiped out. Gov could treat common fairly and newco could dilute the shit out of common holders for years and earnings could blow if new competition is substantial.


Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9119 on: January 12, 2018, 05:40:02 PM »
For those that may have been concerned...
from Peter A. Chapman:
Judge Sweeney's order also denies without prejudice the government's supplemental motion to dismiss (Doc. 161) that attempted to segregate shareholders based on the dates they acquired their shares.

Order attached