Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2426772 times)

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9990 on: June 13, 2018, 04:27:14 AM »
That is exactly what Moelis suggests. Keep the current Treasury credit line for a fee (only to be tapped in catastrophic circumstances), and redeem the senior prefs as fully paid back.

Midas,
Treasury can deem the Srs. paid and remove the overhang but can still provide a backstop in exchange for a commitment fee. Can't they? Isn't this part of the plan?


Luke 5:32

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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

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9992 on: June 13, 2018, 08:45:28 AM »
Midas,
Treasury can deem the Srs. paid and remove the overhang but can still provide a backstop in exchange for a commitment fee. Can't they? Isn't this part of the plan?

The Moelis plan does involve Treasury's backstop declining over time as the companies' capital reserves increase.

The problem here is that if getting out of the backstop is Treasury's incentive for deeming the seniors repaid, continuing to provide a backstop undermines the argument. Every year that Treasury's backstop exists - while the companies are undercapitalized - increases the risk of another bailout.

It all depends on whether Mnuchin is willing to have Treasury still on the hook past Trump's term (albeit with an end in sight), or if he instead wants the backstop completely gone by the end of 2020. The former allows for retained earnings to increase core capital for longer, reducing dilution to commons.

The original Moelis plan was scheduled to basically have the companies out of conservatorship by the end of 2020, coinciding with Mnuchin's timeline. Mnuchin's delays, though, have sown the seeds of a conflict between staying on the timeline and not having to move too fast.

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9993 on: June 13, 2018, 09:37:57 AM »
Quote
... and not having to move too fast.
"Fast" is in the eye of the beholder lol. At the speed this Administration moves we could still be right on schedule.

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9994 on: June 13, 2018, 09:40:19 AM »
Also keep in mind the Moelis plan had a 3-4 year timeline, pre tax reform. Since tax reform passed, GSEs earnings are materially boosted which will lead to quicker build up of retained earnings. What was 3-4 years pre tax reform is now 2-3 years. So still on schedule for 2020.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9995 on: June 13, 2018, 09:53:05 AM »
Also keep in mind the Moelis plan had a 3-4 year timeline, pre tax reform. Since tax reform passed, GSEs earnings are materially boosted which will lead to quicker build up of retained earnings. What was 3-4 years pre tax reform is now 2-3 years. So still on schedule for 2020.

Excellent point.
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

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9996 on: June 13, 2018, 10:47:21 AM »
Also keep in mind the Moelis plan had a 3-4 year timeline, pre tax reform. Since tax reform passed, GSEs earnings are materially boosted which will lead to quicker build up of retained earnings. What was 3-4 years pre tax reform is now 2-3 years. So still on schedule for 2020.

Good point, but every NWS dividend sent out makes things worse. Unless one expects Treasury to send back overpayments past the 10% moment (I don't), time is still working against Mnuchin.

Our best hope now, perhaps, is another letter agreement upping the capital reserve to $12B or so per company to account for the rest of 2018's earnings, assuming Mnuchin really does want to wait out the current Congress. Mnuchin has said he wants to work with Watt's successor, but Josh Rosner makes a good point that given how slow the Senate has been to confirm appointments, Watt won't necessarily be stepping down immediately in January 2019.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9997 on: June 13, 2018, 01:35:53 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

PDF attached...
« Last Edit: June 13, 2018, 01:58:58 PM by Luke 5:32 »
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

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9998 on: June 13, 2018, 02:01:07 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

Wow, shots fired. I wonder why nobody has tried a lawsuit challenging these aspects of Watt and FHFA's behavior without going after the NWS itself, so as to not get the case consolidated with others. Since this is a duty of the Director, and not the Conservator, the 4617(f) bar cannot apply.

Even then I would love to hear a Congressional committee ask Watt directly why he has chosen to suspend capital standards when he has no statutory authority to do so. The idea that Treasury's backstop can substitute for capital is indefensible, and points to some level of hypocrisy given FHFA's use of the statutes to defend their choices in the capital requirements paper.

Heck, the capital standards paper from yesterday should have been done long ago. And not just that, the standards need to be enforced. It's in HERA section 1361(a)(1): (emphasis added)

Quote
‘(a) In General-

    ‘(1) ENTERPRISES- The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises.

These requirements trigger specific other duties by FHFA and the companies as the levels are breached. Since maintaining sufficient capital is a "shall", then doesn't every NWS payment violate this section, especially since not having capital requirements isn't a statutorially (sp?) authorized option? Especially because the SPSPAs cannot override HERA.


Let's go further. Section 1313(a)(1)(B)(i): (emphasis added)

Quote
(1) PRINCIPAL DUTIES- The principal duties of the Director shall be--

    ‘(A) to oversee the prudential operations of each regulated entity; and

    ‘(B) to ensure that--
‘(i) each regulated entity operates in a safe and sound manner, including maintenance of adequate capital and internal controls;

Hard to square NWS payments with the maintenance of adequate capital. Unless you decide that zero capital is adequate? Or that if no capital standards exist, neither does the notion of "adequate capital"?
« Last Edit: June 13, 2018, 02:41:56 PM by Midas79 »

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9999 on: June 13, 2018, 02:52:49 PM »
Fire him..

"Ten years after they were placed in Conservatorship the GSEs have nothing more than a $3 billion capital buffer. FHFA’s capital rule calculates the GSEs need $154.1 billion of capital (excluding the deferred tax assets). For FHFA to ignore its clear responsibilities under HERA, and to leave taxpayers fully exposed to potential future losses of up to $154.1 billion is not only not prudent but it is an unsafe and unsound decision by a regulator who possesses all of the necessary authorities, in law, to require the GSEs to build larger capital buffers"


Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

PDF attached...