Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3649291 times)

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12590 on: May 31, 2019, 10:43:03 AM »
Your starting point should be 80% dilution (assuming gov exercises its warrants).. then work from there. There are ~5.6b FNMA shares before IPO. I get to 90-95% dilution with IPO raise depending on cap requirements.
« Last Edit: May 31, 2019, 10:46:12 AM by allnatural »


cdogstu99

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12591 on: May 31, 2019, 10:46:41 AM »
Yeah but my initial starting point of $2 in EPS already accounts for that Treasury Stake. 

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12592 on: May 31, 2019, 02:26:22 PM »
Thoughts?

Two years is too long. This all needs to be done in the next 12 months imo, if not sooner, so that it doesn't get dragged into the campaign and election cycle. Going past Trump's term adds in the danger that he gets voted out and the new president just quashes the whole thing with a new Treasury secretary and probably a new FHFA director.

$30B in new prefs only for Fannie seems way too high. Are they really going to carry $49B worth of prefs on their balance sheet? That alone will push the share price down. If Fannie is going to issue that many prefs I think they convert the existing ones to common. At market rates (4.5:1), that's $19.14B / $25 * 4.5 = 3.45B new shares. That adds in another 75% dilution or so, bringing the commons to $2.50, keeping everything else in your model constant.

james22

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12593 on: May 31, 2019, 05:05:59 PM »
Thinking of this as simply as possible means asking cui bono, and no one benefits from the status quo.

I believe the most significant risk today is the housing or stock market crashing. Two years is too long for that reason.
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muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12594 on: May 31, 2019, 09:25:48 PM »
But Simplistically Speaking.... If I have a company that absent the sweep is worth $100 Billion, if they raise an additional $100 Billion, as a standing shareholder, I am diluted by 50%. 


That's not true.
Let's say the company is earning $100, and total outstanding shares 100. so EPS is $1. Let's say the stock trades at 10 per share, for a P/E of 10.
If the company issues 100 shares at 10 per share, there is $1000 in the balance sheet.
So now, EPS is reduced to $0.5, but cash per share increased by $5.
For simplicity's sake, let's just say the company uses this extra $1000 to buy back 100 shares. Then total shares outstanding is back to 100, and EPS back to $1.

My point here is that equity offering at a reasonable price does not dilute shareholders. Equity offering at elevated valuations actually enhance shareholder value.

I am muslceman. I have more muscle than brain!

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12595 on: June 01, 2019, 08:46:27 AM »
But Simplistically Speaking.... If I have a company that absent the sweep is worth $100 Billion, if they raise an additional $100 Billion, as a standing shareholder, I am diluted by 50%. 


That's not true.
Let's say the company is earning $100, and total outstanding shares 100. so EPS is $1. Let's say the stock trades at 10 per share, for a P/E of 10.
If the company issues 100 shares at 10 per share, there is $1000 in the balance sheet.
So now, EPS is reduced to $0.5, but cash per share increased by $5.
For simplicity's sake, let's just say the company uses this extra $1000 to buy back 100 shares. Then total shares outstanding is back to 100, and EPS back to $1.

My point here is that equity offering at a reasonable price does not dilute shareholders. Equity offering at elevated valuations actually enhance shareholder value.

my only thought is that most issuers use stock issuance proceeds to invest in expanding their businesses, and try to get a high return on capital.  not so with GSEs.  they are already humming along in full mode, so that stock proceeds will be used to pay down debt, lower leverage...which is good, extra capital is needed, but this is not the situation where dilution is not an issue because in most situations if the proceeds are put into highly productive use the new stockholders may be adding rather than diluting the pie

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12596 on: June 01, 2019, 09:21:52 AM »
But Simplistically Speaking.... If I have a company that absent the sweep is worth $100 Billion, if they raise an additional $100 Billion, as a standing shareholder, I am diluted by 50%. 


That's not true.
Let's say the company is earning $100, and total outstanding shares 100. so EPS is $1. Let's say the stock trades at 10 per share, for a P/E of 10.
If the company issues 100 shares at 10 per share, there is $1000 in the balance sheet.
So now, EPS is reduced to $0.5, but cash per share increased by $5.
For simplicity's sake, let's just say the company uses this extra $1000 to buy back 100 shares. Then total shares outstanding is back to 100, and EPS back to $1.

My point here is that equity offering at a reasonable price does not dilute shareholders. Equity offering at elevated valuations actually enhance shareholder value.

my only thought is that most issuers use stock issuance proceeds to invest in expanding their businesses, and try to get a high return on capital.  not so with GSEs.  they are already humming along in full mode, so that stock proceeds will be used to pay down debt, lower leverage...which is good, extra capital is needed, but this is not the situation where dilution is not an issue because in most situations if the proceeds are put into highly productive use the new stockholders may be adding rather than diluting the pie


Yeah that's true to be an immediate dilution. However, these two twins can't seem to expand their business or use the earnings for other things, so after the 100 bn capital injection, they'll have to use their earnings  to either pay a high dividend to the common or buy back shares. So sooner or later what  I described above will happen.

Regardless, it should be good for the preferreds.
I am muslceman. I have more muscle than brain!

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12597 on: June 03, 2019, 09:12:05 AM »
Calabria speech from today: https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-HUD-and-NAHBs-Innovative-Housing-Showcase.aspx

"So, I will be taking administrative action where I can. And I will be consulting with Congress, the Administration, and other regulators wherever necessary. "

beaufort

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12598 on: June 03, 2019, 12:58:01 PM »
Does anyone recall what the tax treatment was for investors in the prefs who converted to common in Citi and AIG? Was it a tax free rollover with the ACB adjusted across newly issued shares or was there a deemed disposition with associated CG taxes?  Please identify whether for IRS or CRA. 

     

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12599 on: June 03, 2019, 03:21:17 PM »
Does anyone recall what the tax treatment was for investors in the prefs who converted to common in Citi and AIG? Was it a tax free rollover with the ACB adjusted across newly issued shares or was there a deemed disposition with associated CG taxes?  Please identify whether for IRS or CRA. 

     

an equity for equity of the same issuer swap is not taxable