Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3718556 times)

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14240 on: November 14, 2019, 08:33:07 PM »
very interesting post allnatural.  I agree that these two blowups may have accentuated junior pref angst. 

to my mind, calabria needs to hire a financial advisor soon and let them do its work.  I am more than tired of having this phd know-everything trying to prove he knows financial capital markets as well as everything else.

Amen to that. He has been talking his mouth off lately but doesn't seem to know any more about what will happen then we do. Every other day you get new info but its convoluted and contradicts the day before.

InvestorG mentioned this too but the 23-24 timeline gives much more time for retained capital so apples to apples common has much higher upside with all of those retained earnings then preferred to par. Even better would be a preferred to common conversion and then they can retain all the earnings they want.
« Last Edit: November 14, 2019, 08:35:23 PM by orthopa »


Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14241 on: November 15, 2019, 05:29:24 AM »
Josh Rosner: A brief we sent yesterday morning re #FHFA #Calabria & context of his speech on Wednesday.

Link... https://www.scribd.com/document/435137928/Context-FHFA-Dir-Calabria-s-Latest-Comments-the-Non-Fake-News-Version

PDF attached...
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Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14242 on: November 15, 2019, 05:38:01 AM »
Josh Rosner: A brief we sent yesterday morning re #FHFA #Calabria & context of his speech on Wednesday.

Link... https://www.scribd.com/document/435137928/Context-FHFA-Dir-Calabria-s-Latest-Comments-the-Non-Fake-News-Version

PDF attached...

And for what it's worth, Tim Rood was in attendance and agrees with Rosner's analysis...
https://twitter.com/collingwoodllc/status/1195332590779142146
I was there and agree with your analysis
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

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14243 on: November 15, 2019, 05:50:38 AM »
Rosner believes there will be a q1 pspa amendment to write down the senior pfds as precursor to capital restoration plan...

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14244 on: November 15, 2019, 06:17:09 AM »
This is mainly a question for Midas and anyone who wants to chime in but I'm admittedly getting a little confused with the capital necessary to release with consent decree which to me seems like the next situation outside of another PSPA amendment that could vault the preferred closer to par. Couple of questions.

1. Do we not know yet what the capital level will be to release on consent decree because the capital rule isnt done yet?

2. I know you posted the different capital levels before but we do not know yet which level; under capitalized, critically undercapitalized, etc Calabria will choose to release and the amount for each level correct?

3. Fannie is at 10.3 B of capital now so a level of ~20B would be accomplished mid June I know that has been speculated by some but others have mentioned the current earnings cap of 45B combined between the two as a target before consent decree agreement and new PSPA. What are your thoughts on that?

Thanks

The main problem is that we don't really know how much capital Calabria will insist on before releasing FnF under a consent decree. The common knowledge seems to be the current statutory minimum (around $23B for Fannie and $17B for Freddie), but I don't think this is necessarily true. That's still a leverage ratio of 137:1, and with Calabria continuing to mention that ratio, I don't see something higher than 100:1 being enough.

1. I don't think the capital rule has to spell out the release threshold. It will only determine the levels for FnF's capitalization standard (Adequately Capitalized, Undercapitalized, Significantly Undercapitalized). The fourth (Critically Undercapitalized) is half the statutory minimum by HERA, and is not subject to Calabria's determination.
2. Correct. We can be certain that the release threshold will be lower than Adequately Capitalized, but not which level below it. It won't necessarily have to be right at one of those levels, but I would be surprised if it wasn't. Calabria's oversight over FnF changes form at each level.
3. I think the "statutory min of $40B for release" narrative came from the $45B earnings cap in the September letter agreements. But in my opinion it's a coincidence. Also, the PSPA amendment needs to come before the consent decree, as do resolutions to the lawsuits. The seniors represent such a drag on core capital that they cannot remain in place, otherwise FnF remain stuck in Critically Undercapitalized.

I know you didn't ask this, but I still would rather hold at least 90% prefs (vis a vis the commons) because even if release is granted at the statutory minimum, I believe that a conversion is highly likely, which would cement the juniors' outperformance. There are plenty of reasons for Calabria to offer a conversion, and no good ones for him not to.

Wiggins

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14245 on: November 15, 2019, 07:35:53 AM »
There was news published about Calabria and/or Mnuchin's comments in June that made the security prices go down, a lot. Then a month or two later there were stories that made the prices recover virtually fully and commons perhaps even more. This has repeated itself on a smaller scale several times. Now, there are comments by Calabria -filtered through media, of course- that have made the prices swoon once again. If you KNEW when/how/why these stories were being published and traded appropriately, you could do quite well. How much do you want to bet that comments will come out in the next few days or weeks that will reverse the trend?

The main point is not that I know when this information comes out and thus whether or not to trade on it; I don't have any information on that whatsoever. I don't have inside information at all. The point is that the real information has been incredibly positive over time and continues to trend upwards. So, just sit tight and weather the storm. If there is another investment out there that's better, then by all means go for it. But I still like JPS here, a lot.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14246 on: November 15, 2019, 09:01:57 AM »
Rosner believes there will be a q1 pspa amendment to write down the senior pfds as precursor to capital restoration plan...

I haven't thought about this sequencing before, but it would be impossible for the GSEs to present their capital restoration plans without knowing the disposition of the senior preferred.  I have been thinking that the nuking of the senior preferred would occur late in the process, simply because there would be no reason for the govt to do it any sooner, but this would be one reason....to tell the GSEs to work up their plans without the senior prefs outstanding or based upon the assumption the senior prefs are not outstanding...and if based on that assumption, then the cat is out of the bag even if the actual nuking occurs later.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14247 on: November 15, 2019, 09:10:50 AM »
"I know you didn't ask this, but I still would rather hold at least 90% prefs (vis a vis the commons) because even if release is granted at the statutory minimum, I believe that a conversion is highly likely, which would cement the juniors' outperformance. There are plenty of reasons for Calabria to offer a conversion, and no good ones for him not to."

I agree with this, but more so than calabria, I believe the financial advisors to fhfa and GSEs will think so, mainly for two reasons.

first, the juniors are high interest paper and can be replaced in the capital structure at a cheaper cost.  while I dont think new preferred will be offered out of the gate, I do believe that the financial advisors will want to pave the way out of the gate to issue new preferred later down the line. 

second, I do believe that the financial advisors will want the common to pay a small dividend.  this will expand the universe of potential buyers, and you cant pay a dividend on the common without paying dividends on the juniors, and to do so would be highly inefficient.
« Last Edit: November 15, 2019, 09:14:06 AM by cherzeca »

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14248 on: November 15, 2019, 11:09:39 AM »
I say that Calabria will be offering the conversion because he, and not the boards of directors, will be the one making the final decision. I certainly agree with your two reasons.

Another one is that if FnF's capital requirement happens to rise in the future, it's much easier to sell new preferred shares than new common shares on a piecemeal basis. The first time you try to raise commons for that purpose it works, but any time after that each potential group of investors won't know if the same thing will happen to them again. All the more reason to clear out the existing prefs, especially in a way that doesn't cost FnF any cash.

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14249 on: November 15, 2019, 12:34:43 PM »
If anyone is wondering why the GSEs got slammed this week.. case in point:


Charles Gasparino  @CGasparino
2m
SCOOP-Major hedge funds experiencing large losses @Chesapeak @PGE4Me and @intelstat implode over past month. Shares and bond prices of these companies hit lows over a variety of issues impacting major hedge funds, causing hedge fund route even as mkt average move to new highs

Charles Gasparino  @CGasparino
2m
(cont) PointState Capital is said to be one hedge fund long Intelstat positions, suffering losses but is said not to be liquidating major positions. Other hedge funds appear to be puking @FannieMae preferred to make up for losses contributing to lower prices more now @FoxBusiness

Charles Gasparino
@CGasparino
$FNMA $I $PCG $CHK