FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[rros]

midas, you are onto the core issue in collins, which is that in the 5th circuit, the Mcallister case interpreted "may" as "only may".  McAllister for the 5th circuit is even stronger than CedarMinn for the 8th circuit.

I don't know why Cooper & Kirk aren't making a big stink about this in their motion for rehearing.  they mention Mcallister, but only in passing.

I just had a daydream about how this could have gone down in oral arguments, complete with expansive hand and arm gestures, incredulous voicing at the proper spots, the whole works.



Thompson: The defendants have argued, successfully in other courts, that the word "may" in section 1367(b)(2)(D) is merely permissive in nature and not exclusionary. But this very court found the opposite to be true in McAllister vs RTC. In that case, this court said that a conservator, quote, 'only', let me repeat only, 'has the power to take actions necessary to restore a financially troubled institution to solvency.  Expenses of liquidation cannot be incurred by a conservator as a matter of law, as', and I emphasize here, 'liquidation is not a function of the conservator.'

Allow me to read the relevant section in HERA. 'The Agency may, as conservator, take such action as may be--
    ‘(i) necessary to put the regulated entity in a sound and solvent condition; and'
(I emphasize and)
   ' ‘(ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.'

Given these things, that FHFA's powers as conservator only, as stated by this court, allow it to take actions to restore the companies to solvency, and that HERA requires FHFA to take both parts of section 1367(b)(2)(D) into account, how can the Net Worth Sweep be anything other than ultra vires? The Net Worth Sweep does the opposite of (i) because it endangers, rather than promotes, the financial soundness of the companies, and it also does the opposite of (ii) because it, rather than preserving and conserving the assets of the companies, instead gives them away to Treasury in perpetuity.

As a clearly ultra vires act, the Net Worth Sweep is thus reviewable by this court and the bar of judicial review found in section 4617(f) does not apply. Thank you, your honors.



Alas, the opportunity has likely passed by.

The 5th Circuit McAllister vs RTC opinion references RTC vs United Trust Corp. in the 11th Circuit. That opinion, found here: https://caselaw.findlaw.com/us-11th-circuit/1225205.html, says:

The CedarMinn court also recognized that the distinct missions of conservators and receivers necessitated that each retain an independent right to repudiate contracts.   The conservator's mission is to conserve assets which often involves continuing an ongoing business.   The receiver's mission is to shut a business down and sell off its assets.

They used the 8th Circuit's CedarMinn case as part of an opinion. Does that bind the 11th Circuit? Has a NWS case been brought before the 11th Circuit yet?

So.. I am curious, Midas.

What would you do if the government front-run us within the next 4 months and unwinds the nws as part of a Moelis plan (Watt ordering the companies to come up with a recap plan will be the green light)? Will this and lawsuits seeking similar remedies just deflate?

Perhaps there is a reason why Cooper is becoming more aggressive pursuing a nationalization/meaningful compensation strategy, as per his last filing.

[allnatural]

That all depends on how the government treats the Senior prefs. If they mark it to zero/paid off, all the lawsuits are naturally resolved (which is great). If they claim they can stop the sweep and recap the entities while having the senior prefs outstanding, good luck ever achieving a recap in that scenario (no rational investor will commit a penny) and the lawsuits will continue.

What you're describing is a best care scenario for shareholders (assuming senior prefs are treated as paid down).

So.. I am curious, Midas.

What would you do if the government front-run us within the next 4 months and unwinds the nws as part of a Moelis plan (Watt ordering the companies to come up with a recap plan will be the green light)? Will this and lawsuits seeking similar remedies just deflate?

Perhaps there is a reason why Cooper is becoming more aggressive pursuing a nationalization/meaningful compensation strategy, as per his last filing.

[rros]

That all depends on how the government treats the Senior prefs. If they mark it to zero/paid off, all the lawsuits are naturally resolved (which is great). If they claim they can stop the sweep and recap the entities while having the senior prefs outstanding, good luck ever achieving a recap in that scenario (no rational investor will commit a penny) and the lawsuits will continue.

What you're describing is a best care scenario for shareholders (assuming senior prefs are treated as paid down).

So.. I am curious, Midas.

What would you do if the government front-run us within the next 4 months and unwinds the nws as part of a Moelis plan (Watt ordering the companies to come up with a recap plan will be the green light)? Will this and lawsuits seeking similar remedies just deflate?

Perhaps there is a reason why Cooper is becoming more aggressive pursuing a nationalization/meaningful compensation strategy, as per his last filing.

As per Moelis, a pre-requisite to any recapitalization requires the elimination of the Srs. But the greater question remains.

Cooper understands that achieving our monetary goal -amazing for us- may do little to prevent another nws. Something else beyond our monetary gain must happen.

[Midas79]

So.. I am curious, Midas.

What would you do if the government front-run us within the next 4 months and unwinds the nws as part of a Moelis plan (Watt ordering the companies to come up with a recap plan will be the green light)? Will this and lawsuits seeking similar remedies just deflate?

Perhaps there is a reason why Cooper is becoming more aggressive pursuing a nationalization/meaningful compensation strategy, as per his last filing.

That all depends on how the government treats the Senior prefs. If they mark it to zero/paid off, all the lawsuits are naturally resolved (which is great). If they claim they can stop the sweep and recap the entities while having the senior prefs outstanding, good luck ever achieving a recap in that scenario (no rational investor will commit a penny) and the lawsuits will continue.

What you're describing is a best care scenario for shareholders (assuming senior prefs are treated as paid down).

Basically this. The original SPSPA dividends were based on the senior pref liquidation preference, and the NWS dividends seem to be tied to their existence. Cancelling the seniors, deeming them repaid, or converting them to common (this last one is fraught because it might force the government to consolidate FnF's balance sheets onto their own, a nonstarter in my opinion due to it technically skyrocketing the national debt by $5.3T overnight) will mean no more NWS dividends, so the lawsuits should become moot.

I agree with allnatural, that the Moelis plan is more than what the litigants are asking for, so I believe they would drop their lawsuits in exchange for Moelis, though they would likely want something binding in writing from FHFA and Treasury. Dropping lawsuits before that, especially after next week when the statute of limiations expires for the NWS, is not a good idea.

[rros]

So.. I am curious, Midas.

What would you do if the government front-run us within the next 4 months and unwinds the nws as part of a Moelis plan (Watt ordering the companies to come up with a recap plan will be the green light)? Will this and lawsuits seeking similar remedies just deflate?

Perhaps there is a reason why Cooper is becoming more aggressive pursuing a nationalization/meaningful compensation strategy, as per his last filing.

That all depends on how the government treats the Senior prefs. If they mark it to zero/paid off, all the lawsuits are naturally resolved (which is great). If they claim they can stop the sweep and recap the entities while having the senior prefs outstanding, good luck ever achieving a recap in that scenario (no rational investor will commit a penny) and the lawsuits will continue.

What you're describing is a best care scenario for shareholders (assuming senior prefs are treated as paid down).

Basically this. The original SPSPA dividends were based on the senior pref liquidation preference, and the NWS dividends seem to be tied to their existence. Cancelling the seniors, deeming them repaid, or converting them to common (this last one is fraught because it might force the government to consolidate FnF's balance sheets onto their own, a nonstarter in my opinion due to it technically skyrocketing the national debt by $5.3T overnight) will mean no more NWS dividends, so the lawsuits should become moot.

I agree with allnatural, that the Moelis plan is more than what the litigants are asking for, so I believe they would drop their lawsuits in exchange for Moelis, though they would likely want something binding in writing from FHFA and Treasury. Dropping lawsuits before that, especially after next week when the statute of limiations expires for the NWS, is not a good idea.

I partially agree with both of you.

But I now feel specific lawsuits may continue based on what the nws really means, as shown by Cooper's new line of attack. Lawsuit(s) seeking some sort of redemption of shareholders who were decimated by the only nationalization to have ever taken place in the US.

Redemption comes from the Latin word redimere, a combination of re(d)-, meaning “back,” and emere, meaning “buy.” Redemption is what some people claim happens to your soul when you're saved from evil forces.

I know many will simply feel happy by a windfall of any size, if it comes to that. Only a bitter-sweet victory for me. I simply can't believe tens of millions spent over 6 years in meaningful lawsuits will go by the wayside because suddenly the government unwinds the reason behind them. I prefer to believe Cooper is smarter than all of us and there is more to it in his latest filing.

[allnatural]

I like where your head is at rros. What happened here was truly an embarrassment to our nation and it's all factual at this point. I would love to see the government lose in court but unfortunately we might have to agree to a settlement with no acknowledgement from the government of any wrongdoing. After all shareholders are paying Coopers fees... And they would be happy to walk away from this mess with a windfall and reprivatized GSEs.

[Eye4Valu]

If an equitable settlement can be reached, there is no reason to continue on with the lawsuits as a matter of principle. Fannie and Freddie aren't the first nationalization, and won't be the last.

[rros]

If an equitable settlement can be reached, there is no reason to continue on with the lawsuits as a matter of principle. Fannie and Freddie aren't the first nationalization, and won't be the last.

Since the prevailing view is of constructively putting things behind, I will not bring this up again.

[SnarkyPuppy]

Surely it will be challenging to get all common shareholders on board with settling litigation?  There will almost always be some form of contingent liability - in the sense that if Moelis plan is implemented, legacy common shareholders will still be suing over FHFA constitutionality and whether the initial takeover was legal?  The potential windfall to common shareholders is just so huge I don't see them all going away for $8 per share.  Amateur hour over here (me) when it comes to the legal side of the thesis though.

Interesting to know that statute of limitations re: NWS is coming up.  It would make sense to have a stopping point for any new litigation before finalizing any settlements w/ preferred litigants.

[SnarkyPuppy]

With that said, buying some more this morning.   It's truly amazing that some of the variable prefs trade at an implied 19% probability of attaining par value.   The odds are clearly much higher.