Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3564899 times)

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12760 on: June 19, 2019, 03:48:10 PM »
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

Calabria has said a few times that Fannie and Freddie will be left to raise the capital themselves. How much behind the scenes input treasury and fhfa have in reality is something that probably won't ever be known.

If it is left up to the co's then i don't see the need for a super low common price, especially if they have multiple years to raise capital, but we'll see. You pay your money, you take your choice.

disagree.  the entire capital raise will be multistep process and fhfa/treasury will run the show at the beginning.  at some point after the initial raise the companies will take over

+1 No way fannie and freddie are going to raise capital themselves. They are powerless at this time and likely will be to the very end. FHFAs proposed capital rules are the antitheses of not having imput.  They have no control over how much capital they are going to need/get or how they get it. They are going to be told what to do every step along the way by treasury. Who has a fiduciary duty to common share holders at this time?

I guess this is the point that many common holders have (not arguing with you or at you DRValue) not quite understood or get. In this situation no one is the legacy common holders friend. No one. Not treasury, not new capital, not "Fannie and Freddie", not the jr preferred.  Both new capital and Jr Preferred only benefit to gain more the lower the prices goes. My return as a Jr Prd share holder and new moneys return gets significantly higher the lower the price goes in a conversion. Secondly I wouldn't trust treasury for shit. They do not have the common shareholders best interest in mind and have no duty to do so. Almost nearly if not all of the new equity is going to come at the legacy commons expense. At this time, not knowing the governments plan it is a complete 100% gamble as to what the outcome could be in regards to dilution.  At least in the jr prfd there is a par value, a contract, and capital structure. Hell there are some on the board who are still leary of getting par for the prfd, let alone the outcome of the common.

Commons outcome is best if the capital build takes forever, jr prd doesn't convert or is nice in conversion, new equity is ok getting hosed, and capital levels are held low. What are the chances of that happening?

Ill get on my soap box for this but lastly AFAIK Tim Howard holds mostly common shares and thus his latest piece on how FnF shouldn't hold too much capital. But in all honesty aren't we all in this mess because FnF did not have enough capital in the first place? Yes the banks Fd em and they were at fault too, and fannie needed some reform but at the end of the day a FnF that holds more capital is going to be safer.  If anyone else looked at this from the outside it would be insanity to think that less capital should be held to support common legacy stock prices. Lastly if FnF really dont "need" that much capital they why the explicit or implicit guarantee? Why not have more capital in front of it for the MBS investors? Have less like he proposes so their is less dilution? Talk about insanity. The same was said of banks when the CCAR results came out and we heard that investors will never invest because they hold too much capital and returns will dwindle and yet today the banks seem to manage.  Sure FnF are fundamentally different then banks but if an extra .5-1.5% of capital is needed to finally get them adequately capitalized at the risk of some lower returns and modestly higher G fees then so be it.
« Last Edit: June 19, 2019, 03:50:08 PM by orthopa »


DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12761 on: June 20, 2019, 12:40:07 AM »
Well, as you point out doing the raise and then buying the warrants may be a possibility, I guess SPO investors would see that as a massive share buyback. I agree the conservtor wouldn't have an issue with that in that order.

I thought your original post implied that treasury would no longer push for a high share price which means more dilution than exercising the warrants, something I would assume the directors wouldn't go for.

Instead of a share buyback, I see it as a cost of doing business. A reason to get Treasury to agree to the deal, since they have to approve release anyway.

Your second statement is correct, that's exactly what I was implying. What you're missing is that the directors won't have any say over it because it will happen during, and likely right at the end of, conservatorship. FHFA and Treasury hold all the cards, and neither has a fiduciary duty to shareholders. FHFA has no reason to care at what price the share offering is conducted, and if the warrants are sold for a fixed price then Treasury doesn't either. At that point the "more dilution equals more money for new investors" principle kicks in.

This is one downside scenario for the commons, especially compared to the juniors.

Calabria has said a few times that Fannie and Freddie will be left to raise the capital themselves. How much behind the scenes input treasury and fhfa have in reality is something that probably won't ever be known.

If it is left up to the co's then i don't see the need for a super low common price, especially if they have multiple years to raise capital, but we'll see. You pay your money, you take your choice.

disagree.  the entire capital raise will be multistep process and fhfa/treasury will run the show at the beginning.  at some point after the initial raise the companies will take over

We basically agree. Treasury controls nws and warrants so are largest shareholder at the table. Fnf won't decide any of what happens there and will be steered by what the warrants want.

However calabria has said milestones not timeframe, so the exact mechanics over years will likely have some flexibility imo.
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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12762 on: June 20, 2019, 06:03:12 AM »
I will say this, while there may be a roadmap with milestones and hopefully a timeline for congress before the ship sets sail, all of this is really written out of whole cloth.  not only has this type of transaction, raising $100B for massive companies to get out of conservatorship, not been done before, but the guy at the helm has utterly no experience with capital markets.  worse, Calabria clearly holds himself and his intelligence in high regard, which normally is a plus for someone with his responsibility, but given that he doesn't know what he doesn't know, this whole process is going to be white-knuckle.  I just hope the bankers do a good job.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12763 on: June 20, 2019, 07:06:14 AM »
I will say this, while there may be a roadmap with milestones and hopefully a timeline for congress before the ship sets sail, all of this is really written out of whole cloth.  not only has this type of transaction, raising $100B for massive companies to get out of conservatorship, not been done before, but the guy at the helm has utterly no experience with capital markets.  worse, Calabria clearly holds himself and his intelligence in high regard, which normally is a plus for someone with his responsibility, but given that he doesn't know what he doesn't know, this whole process is going to be white-knuckle.  I just hope the bankers do a good job.

I do want this whole thing over now. Roll-on the release of the plan.
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Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12764 on: June 21, 2019, 01:23:22 PM »
Roughly one more week, plus or minus, until we get the plan (hopefully).
Take 4 minutes and listen to it. "Stars" by Skillet: https://www.youtube.com/watch?v=TbLJyjfyACM

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12765 on: June 25, 2019, 08:25:00 AM »
watched the SBC hearing on SIFI designation.  as far as I could tell, only 6 senators showed up for it.  this should not give anyone in administration comfort that congress will pass legislation re GSEs.

ms wachtler made a lot of sense and is a voice to watch in the debate going forward
« Last Edit: June 25, 2019, 08:37:51 AM by cherzeca »

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12766 on: June 25, 2019, 11:02:18 AM »
watched the SBC hearing on SIFI designation.  as far as I could tell, only 6 senators showed up for it.  this should not give anyone in administration comfort that congress will pass legislation re GSEs.

ms wachtler made a lot of sense and is a voice to watch in the debate going forward

Crapo, Calabria, and the banks would like additional competitors and explicit guarantee.   Brown appears to favor the utility.  And this is before getting Maxine involved.  I'm guessing additional competitors and the utility model plans would be difficult to implement together?  And also guessing that Brown wouldn't give Crapo both things he wants for free.   

So, is it possible to go both utility and explicit guarantee to give each side one piece of what they want?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12767 on: June 25, 2019, 12:16:57 PM »
watched the SBC hearing on SIFI designation.  as far as I could tell, only 6 senators showed up for it.  this should not give anyone in administration comfort that congress will pass legislation re GSEs.

ms wachtler made a lot of sense and is a voice to watch in the debate going forward

Crapo, Calabria, and the banks would like additional competitors and explicit guarantee.   Brown appears to favor the utility.  And this is before getting Maxine involved.  I'm guessing additional competitors and the utility model plans would be difficult to implement together?  And also guessing that Brown wouldn't give Crapo both things he wants for free.   

So, is it possible to go both utility and explicit guarantee to give each side one piece of what they want?

utility reg and fed guaranty would be great for GSEs...which is why I dont think you can expect it from congress.  the whole bus in the republican side of the SBC is driven by tbtf banks, who would want to compete with rather than just sell to GSEs (ie sell to their affiliate in effect to get loans off books and to have friendlier purchase terms).  being a guarantor is very heavy sledding against GSEs without mbs fed backstop.  with no multiple guarantors, I see no fed backstop.

while I admit this is wishful thinking, I dont see how anything congress is doing recently related to GSEs gives calabria and the admin any hope that there will be any congressional reform. 

hardincap

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12768 on: June 26, 2019, 10:06:03 AM »
Quote
we know from the leaked remarks made by Acting Director Otting to the FHFA staff in mid-January that there was an administrative proposal set be announced “in two to four weeks” that “really sets a direction for what the future of housing will be in the U.S.,” and that would require raising “probably somewhere, based upon their business models today, [in the range of] $150 to $200 billion.” Something happened to derail that plan, and I believe it was a swift and fierce show of opposition by the banks and their supporters

imo craig's abrupt resignation has to be interpreted in this context. occams razor explanation is that whatever happened to derail the original plan caused him to resign. what happens now, i dont think anyone has a clue...

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12769 on: June 26, 2019, 10:23:06 AM »
Quote
we know from the leaked remarks made by Acting Director Otting to the FHFA staff in mid-January that there was an administrative proposal set be announced “in two to four weeks” that “really sets a direction for what the future of housing will be in the U.S.,” and that would require raising “probably somewhere, based upon their business models today, [in the range of] $150 to $200 billion.” Something happened to derail that plan, and I believe it was a swift and fierce show of opposition by the banks and their supporters

imo craig's abrupt resignation has to be interpreted in this context. occams razor explanation is that whatever happened to derail the original plan caused him to resign. what happens now, i dont think anyone has a clue...

Well, whatever the plan is large investors are "ecstatic" about it as of June 7th.
Fannie and Freddie stockholders were ecstatic at Calabria’s statements. “It’s exactly what we laid out,” one investor said. “The goal of this president is what can be done administratively. You can see there’s a focus on getting it done.”

https://www.abalert.com/search.pl?ARTICLE=183913
Take 4 minutes and listen to it. "Stars" by Skillet: https://www.youtube.com/watch?v=TbLJyjfyACM