Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3083895 times)

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12470 on: May 17, 2019, 04:30:16 PM »
That's amazing i always assumed Ackman had $40pt bc of zero warrant excercise. $300b in value for government, he really is in lala land!  Even at $150b warrant value which is what he claims today thats $20/shr per his valuation.


cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12471 on: May 17, 2019, 07:44:40 PM »
Phillips sounded very coherent, smart and reasonable.  I love that he made the 10%(11.5%) moment point on his own

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12472 on: May 18, 2019, 12:23:40 AM »
@Midas79

Nothing personal I know 😀. Its good to hear opposing views and get a little bit of balance.

I did think last night about the pref conversion impacting income to common and you make a good point. There's no doubt it would impact income projections and share count but I'm not sure it's a show stopper.

@orthopa

You're rationale for owning prefs is very similar to my own and why I bought them originally years ago. The contract and known value are key. I do see the business as having some duty to common in a capital raise as that is who they are working for. To me it's not like these are start-ups losing money and they're going begging. Fannie will likely have 23b in capital imo and be earning 11b a year. If the companies push the timeline back for capital the more strength they have negotiating with new money. They can get this done without a capital raise if they had to, but the regulator would need to agree the timeline. A pref conversion would be beneficial to income as well.

Hopefully I'm right but if only half right ($9) I'll still be celebrating.

GLTA (especially me 😁)
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orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12473 on: May 18, 2019, 10:23:38 AM »
http://wallstreetonparade.com/2012/08/the-untold-story-of-the-bailout-of-citigroup/

Interesting read on the govts various TARP investments in Citi.

Some snippets.

"The government was going to guarantee a toxic asset pool at Citigroup up to $306 billion (later reduced to $301 billion). As a fee for this arrangement, Citigroup would give the government $7.059 billion in perpetual preferred shares, paying 8 percent annual dividends. And where would an insolvent bank get the funds to pay an 8 percent dividend; from another injection of $20 billion in cash from the government. The Fed also agreed to backstop residual risk in the asset pool through a non-recourse loan if necessary.

The Treasury was also to receive warrants to purchase 66,531,728 shares of common stock at a price of $10.61 per share. (Adjusting for the company’s 1 for 10 reverse stock split, Citigroup closed yesterday at $2.89 – a far distance from a warrant exercise price of $10.61.) "




"The Treasury and the Fed knew exactly whose interests they were protecting.  Just 11 months earlier, Citigroup had publicized a capital raising of $12.5 billion in convertible preferred stock in a private placement – meaning the full details were not released to the public.  The press release said the investors included Saudi Prince Alwaleed bin Talal and Sandy Weill and the Weill Family Foundation.

Following press articles that ran the details in February of 2009, on June 9, 2009, the U.S. Treasury agreed to swap its $25 billion of preferred stock for 7.7 billion shares of common.

Common stock ranks at the very bottom of the chain in terms of claims on the assets of a failed institution.  The government effectively put the taxpayer behind Citigroup’s creditors, bondholders, and its preferred stockholders. It gave up the taxpayers’ place in line as a preferred stock holder and sent the taxpayer to the back of the line. And, it gave up the 8 percent fixed income stream on the preferred. "



"But the plan to bail out the Saudi Prince, Sandy Weill and a select group of “private investors” is cryptically contained in this proxy statement dated June 18, 2009.

The private investors, who made their purchases on or around January 15, 2008 were going to be made whole on their $12.5 billion investment on or around March 18, 2009, despite the fact that Citigroup’s stock had fallen by 88 percent in that period of time. (Their preferred stock was convertible into common.)

I’ve been reading proxy statement for over 30 years.  I have never read a more convoluted, tangled web of unnecessary complexity to arrive at the clear destination: private wealthy individuals were being made whole.

Now I can guess the argument that the Treasury and the Fed would make.  Citigroup could no longer afford to pay either the government or the private investors the high fixed rate of interest on the preferred stock.  To induce these investors to convert to common, they needed an incentive – like being made whole. My argument would be that they would have been wiped out already in November of 2008 if the U.S. government had negotiated properly.

 
Certainly not apples to apples but has the tone of what I believe will happen.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12474 on: May 18, 2019, 11:16:08 AM »
Yup there's risk alright. 😀
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Ahab

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12475 on: May 18, 2019, 01:23:07 PM »
I've really been enjoying the board's commentary this week about commons v. preferreds. The investor in me says stick entirely to the preferreds, they are the safer side of an already incredibly speculative bet. The speculator in me: "Speculative you say? Wait hold my Beer!!"
So, I opened a stake in the commons on Friday (about 20% of my GSE position). My base case is that they are worth $9-12. I see far more dispersion of outcomes than with the preferred stock, but that is a risk I am wiling to take. Anyways, hope everyone has a nice weekend.
Holdings: FNMA/S/J/N, FMCKO, BAC, JPM, FCAU, Tesla (short via put options)
Twitter: AhabValue

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12476 on: May 18, 2019, 04:25:09 PM »
Not that I would recommend the commons, but there is a creative way you can create it for free. Pershing square (PSHZF) trades at ~30% discount to nav (all time high) and has a ~10% GSEs position (20% pfds & 80% common). You can buy PSHZF and short out all the the individual pieces ex GSEs (he only has 8-10 liquid positions) or hedge his book against SPY. Voila, free common exposure (you are actually getting paid to own the GSEs at current discount levels). Ackman is also up 40% ytd fwiw.

Ahab

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12477 on: May 18, 2019, 05:48:47 PM »
This is a very creative idea. Thanks for sharing allnatural!
Holdings: FNMA/S/J/N, FMCKO, BAC, JPM, FCAU, Tesla (short via put options)
Twitter: AhabValue

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12478 on: May 19, 2019, 01:27:59 AM »
Not that I would recommend the commons, but there is a creative way you can create it for free. Pershing square (PSHZF) trades at ~30% discount to nav (all time high) and has a ~10% GSEs position (20% pfds & 80% common). You can buy PSHZF and short out all the the individual pieces ex GSEs (he only has 8-10 liquid positions) or hedge his book against SPY. Voila, free common exposure (you are actually getting paid to own the GSEs at current discount levels). Ackman is also up 40% ytd fwiw.

I've considered something similar but not in that level of detail. Very interesting idea!
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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12479 on: May 19, 2019, 03:13:22 AM »
@allnatural full marks and I think buying a simple SPY put with expiration of your target date for when you think the recap will actually begin should be good enough hedge as you say. Though if the fund discount doesn’t reverse it is a long run for a short slide. And that discount has been persistent in that name.