Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3711623 times)

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13390 on: August 29, 2019, 08:24:09 AM »
the biggest news re plan recently imo was that it has been sitting on Mnuchin's desk for 3 months because HUD was slow in finishing its work and the plan will be a joint presentation and thus we were all waiting on HUD. 

there are no more tea leaves to read until the plan comes out....unless mnuchin suddenly is dragged into china trade negotiations and kicks can for some reason...but I tend to doubt this if you believe that the Phillips work product was ready for prime time in June
« Last Edit: August 29, 2019, 08:31:29 AM by cherzeca »


Luke 5:32

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A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13392 on: August 30, 2019, 06:51:51 AM »
Does anyone here think that the Citi preferred to common conversion is worth studying as a parallel to a pontial one for FnF? The circumstances are rather different given the timing, capital situations, and comparative leverage, but it could be worth looking into.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13393 on: August 30, 2019, 07:06:23 AM »
Does anyone here think that the Citi preferred to common conversion is worth studying as a parallel to a pontial one for FnF? The circumstances are rather different given the timing, capital situations, and comparative leverage, but it could be worth looking into.

I think past FC bailout recap templates are all worth reviewing since one would think Phillips had someone in treasury review them for guidance.  but Phillips and Mnuchin are deal makers and this recap involves a deal specific to the issues and facts relating to the GSEs and the prominent holders of preferred (assuming as I do that part of the plan will be to get everyone into the pool as it were).  I believe it would have made sense for phillips to have had discussions with these holders, though I couldn't say what the takeaways might be.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13394 on: August 30, 2019, 07:34:16 AM »
Hannah Lang's article tonight in American Banker...
https://www.americanbanker.com/list/will-gse-reform-get-some-clarity-from-long-awaited-blueprints?utm_medium=social&utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter

I think the plan will be more general and nonspecific than many would want, but there is one point that I expect to be made, and if it is I will be satisfied.

I expect the plan to make clear that the GSEs will be returned to private ownership by means of retention of earnings and capital raises, market conditions permitting.  right there, this would imply that the NWS must end.  whether the plan specifically states this, and even goes on to discuss the 10% moment and how we have reached the 12% moment as phillips has said, I know not, but I would rather expect that these details will await the Calabria/mnuchin negotiation.  any references to capital will be bromide like...safety etc rather than specific amounts and %s.  there will likely be no reference to settling litigation, but again this would be implied.

we know that the plan will call upon congress to permit additional guarantors and a limited fed guaranty.  I expect the plan will not state that moving to private capital will await congressional action.  I would hope the plan sets forth next steps which would refer to fhfa negotiation and regulatory action.

the whole HUD angle is an unknown.  how it affects the GSEs is hard to predict, but I expect the plan will call for HUD to improve operations and reduce risk...without saying how.

« Last Edit: August 30, 2019, 08:38:48 AM by cherzeca »

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13395 on: August 30, 2019, 07:39:34 AM »
Hannah Lang's article tonight in American Banker...
https://www.americanbanker.com/list/will-gse-reform-get-some-clarity-from-long-awaited-blueprints?utm_medium=social&utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter

I think the plan will be more general and nonspecific than may would want, but there is one point that I expect to be made, and if it is I will be satisfied.

I expect the plan to make clear that the GSEs will be returned to private ownership by means of retention of earnings and capital raises, market conditions permitting.  right there, this would imply that the NWS must end.  whether the plan specifically states this, and even goes on to discuss the 10% moment and how we have reached the 12% moment as phillips has said, I know not, but I would rather expect that these details will await the Calabria/mnuchin negotiation.  any references to capital will be bromide like...safety etc rather than specific amounts and %s.  there will likely be no reference to settling litigation, but again this would be implied.

we know that the plan will call upon congress to permit additional guarantors and a limited fed guaranty.  I expect the plan will not state that moving to private capital will await congressional action.  I would hope the plan sets forth next steps which would refer to fhfa negotiation and regulatory action.

the whole HUD angle is an unknown.  how it affects the GSEs is hard to predict, but I expect the plan will call for HUD to improve operations and reduce risk...without saying how.

I think cherzeca may very well be right.  I wonder how the prefs would react the week following the plan release in terms of percentage of par under cherzeca's scenario.
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13396 on: August 30, 2019, 03:50:38 PM »
Does anyone here think that the Citi preferred to common conversion is worth studying as a parallel to a pontial one for FnF? The circumstances are rather different given the timing, capital situations, and comparative leverage, but it could be worth looking into.

I think its worth a look. I looked at Citi a while back, and most recently at AIG. I think its worth referencing.  Its been hashed out here before but probably buried hundreds of pages back, but I think the preferred to common conversion, new preferred issues, and eventual sale of warrants/exercise by treasury has been tested multiple times since the financial crisis with some tweaks along the way. Mnuchin and Phillips may have their own tweaks but the above builds capital faster, gets rid of expensive legacy preferred, and has been executed successfully before.

Remember back in May supposedly some investors met with Calabria and were "thrilled" with the discussion. My assumption has to be these were preferred holders as there were/are still too many unknowns regarding the common to make a valuation call within reason. With common we still dont know capital ratios, how much or if preferred get converted, What the ratio of conversion is, and does treasury exercise warrants and how many, how much capital is retained and when does it start?  With the preferred it could be as simple as you get converted at par, etc. Much easier to predict that IMO.

Of course that could all be rubbish and a waste of time but something to think about in regards to why there were so thrilled.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13397 on: August 30, 2019, 07:46:27 PM »
Does anyone here think that the Citi preferred to common conversion is worth studying as a parallel to a pontial one for FnF? The circumstances are rather different given the timing, capital situations, and comparative leverage, but it could be worth looking into.

I think its worth a look. I looked at Citi a while back, and most recently at AIG. I think its worth referencing.  Its been hashed out here before but probably buried hundreds of pages back, but I think the preferred to common conversion, new preferred issues, and eventual sale of warrants/exercise by treasury has been tested multiple times since the financial crisis with some tweaks along the way. Mnuchin and Phillips may have their own tweaks but the above builds capital faster, gets rid of expensive legacy preferred, and has been executed successfully before.

Remember back in May supposedly some investors met with Calabria and were "thrilled" with the discussion. My assumption has to be these were preferred holders as there were/are still too many unknowns regarding the common to make a valuation call within reason. With common we still dont know capital ratios, how much or if preferred get converted, What the ratio of conversion is, and does treasury exercise warrants and how many, how much capital is retained and when does it start?  With the preferred it could be as simple as you get converted at par, etc. Much easier to predict that IMO.

Of course that could all be rubbish and a waste of time but something to think about in regards to why there were so thrilled.

to put it perhaps too simply, if you think that it makes sense for the recap to try to have all junior prefs exchange into common, then you would rather be a future common holder by exchange rather than a current common holder from the get go.  since junior prefs are going to be induced to exchange (and really only compelled to if 2/3rds of your class have already agreed to), there may be an advantage in being the recipient of the inducement (ie a favorable exchange ratio) rather than a common holder watching as a spectator.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13398 on: August 31, 2019, 10:34:21 AM »
https://twitter.com/ACGAnalytics/status/1167849698956369920
Plan will outline a path to privatization. What can the executive branch do and where do they need Congress. Building capital through retention of profits will listed as consistent with Exec Power and HERA.

In other words, the NWS will be ending soon.  For what it's worth, Gasparino agrees that this is what is happening.

https://twitter.com/CGasparino/status/1167850297974304768
Based on what I have reported on the @USTreasury GSE plan this sounds accurate. BUT it also displays a kick-the-can approach so there probably won’t be a full reform in an election year
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13399 on: September 01, 2019, 11:37:55 AM »
@cherzeca

I saw your post on Tim Howard's blog about a possible 4th amendment rescuing the 3rd. Is it possible that the sides are in confidential settlement talks and have asked the court to delay its decision until those talks either break down completely or lead to a successful settlement? From everything I can tell, Treasury is willing to give up the seniors and the NWS because those are necessary steps towards raising capital. What, then, do Treasury or FHFA have to lose by settling the case? Or are there too many potential leaks for this to be plausible given that we haven't heard anything at all about a possible settlement?

One potential piece of disconfirming evidence, though, is Calabria's letter reversing Otting's position and claiming that the for cause removal is constitutional after all. If the Collins case is settled and dismissed rather than being ruled on by the en banc panel, what happens to the FHFA director removal clause? Does it remain in its original HERA state (for cause) because the state of the world would be as if the Collins case never happened? Or would it change to at will because that's what the Fifth Circuit merits panel ruled? Or would its fate be part of the negotiations?