Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4369108 times)

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15780 on: July 11, 2020, 08:00:49 AM »
“There will not be a settlement and not even needed.  An IPO is not needed either. Lawsuits will drop by themselves when these happen organically:

Preferred Dividends restart
NWS stops
Relist on exchange
Treasury sells back warrants at the price they bought at @0.001 or whatever
Commons reach $85 as they used to be, preferreds reach more than par, and back dividends from 2013 paid as additional preferred shares
Treasury pays back excess dividend after keeping principal and 10% interest
CFPB pays back to GSE all of the fines collected that never made it to borrowers

Would you have your lawsuit going on if the above happens? Where is the damage? What damage? “


emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15781 on: July 11, 2020, 08:01:25 AM »
“There is no way shareholders lose Scotus case. If they lose, there will not be any IPO or recap as no one would put up any new money just to learn it will be all gone again. Will you? This will be the largest shareholder victory in history in the making “

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15782 on: July 11, 2020, 08:03:01 AM »
"This scenario never dawned on me."

hasn't dawned on calabria and mnuchin either.  I dont think mnuchin wants to go to trump right now and say he is writing a big check to F/F.  cancelling a piece of paper at least a little more palatable.

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15783 on: July 11, 2020, 10:49:25 AM »
"This scenario never dawned on me."

hasn't dawned on calabria and mnuchin either.  I dont think mnuchin wants to go to trump right now and say he is writing a big check to F/F.  cancelling a piece of paper at least a little more palatable.

If the goal is the most efficient return to private ownership, isn't this scenario it?

1.  It maximizes the amount of capital the GSEs would have as a starting point for private capital.  No other scenario gets close to what this scenario does.
2.  It moots the lawsuits.
3.  The taxpayer is protected b/c by converting sr pref to common, the government ends up with high 90% ownership.  In effect, they own most of the excess dividend refund check that would come back to the GSEs.  So optically it might look bad for a second, but economically it's a wash to taxpayers.
4.  Also optically, it might impair the common so the articles can't be written about bonanza to GSE equity holders (which are always referenced to be HFs / speculators)
5.  If FHFA cap rule has no amendments, it leaves about $65B of total capital to raise at year-end to get to fully adequate capitalization.  That is a very doable figure.  With a few tweaks to the rule, we might basically be there...

Isn't this the solution hiding in plain sight?  Also:  optics don't matter in a lame duck...

The main question I have is what authority does TSY have to write that check and then the legal issue Midas posed earlier of the FHFA being unconstitutional and Biden wanting to reverse all of this in a new admin.  Cherzeca, would the court give a ruling on the constitutional issue from the bench  in the fall or do we have to wait for the summer opinion for them to officially amend the statute to make the FHFA constitutional?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15784 on: July 11, 2020, 11:06:42 AM »
"have is what authority does TSY have to write that check"

HERA makes clear that amounts that treasury invests via its current credit line has been appropriated, so whatever the remaining amount is would be authorized.  that line is for receipt of senior pref, but that could be amended.

but this wont happen

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15785 on: July 11, 2020, 11:19:32 AM »
Pretty easy to substitute "receipt of common shares"!


orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15786 on: July 11, 2020, 01:02:12 PM »
If the Jr. Preferred are converted to common (as I expect) as discussed the trailing 30 day share price will likely be used for conversion. I would think Calabria would want both the common and Jr preferred on the big board for true price discovery for a fair bit more then a month. Thinking that there is a big bang just after election if Trump loses or in Dec/Jan time frame if Trump wins there is a good chance these get up listed in late summer early fall which is right around the corner. Prices will likely jump for both classes but will be interesting to see where the common settles.

Exchange of 5-6 for 1 possible at a minimum to full par. If not exchanged at full par the Nomura piece out a couple of weeks ago speculated warrants may also be part of the deal for Jr Preferred with a $2.50 strike price and expectation of $5 common re IPO price. This would give the optics of Jr preferred not getting a windfall as a % of par and make it up on the back end with the IPO. Something I never thought about.
« Last Edit: July 11, 2020, 03:08:48 PM by orthopa »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15787 on: July 11, 2020, 01:04:29 PM »
If the Jr. Preferred are converted to common (as I expect) as discussed the trailing 30 day share price will likely be used for conversion. I would think Calabria would want both the common and Jr preferred on the big board for true price discovery for at least a month. Thinking that there is a bing bang just after election if Trump loses or in Dec/Jan time frame if Trump wins there is a good chance these get up listed in late summer early fall which is right around the corner. Prices will likely jump for both classes but will be interesting to see where the common settles.

Exchange of 5-6 for 1 possible at a minimum to full par. If not exchanged at full par the Nomura piece out a couple of weeks ago speculated warrants may also be part of the deal for Jr Preferred with a $2.50 strike price and expectation of $5 common re IPO price. This would give the optics of Jr preferred not getting a windfall as a % of par and make it up on the back end with the IPO. Something I never thought about.

can anyone link to the nomura piece?

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15788 on: July 11, 2020, 01:07:03 PM »
Orthopa:  What would exchanging jr pfd for common accomplish?

It doesn't increase capital.  It just converts Tier 1 capital to CET1 capital.

The 30 day trailing price is as good a mechanism as any for setting the ratio, but I'm struggling to understand the rationale for such an exchange.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15789 on: July 11, 2020, 03:04:30 PM »
Orthopa:  What would exchanging jr pfd for common accomplish?

It doesn't increase capital.  It just converts Tier 1 capital to CET1 capital.

The 30 day trailing price is as good a mechanism as any for setting the ratio, but I'm struggling to understand the rationale for such an exchange.

current junior prefs have very high div rates on average.  clearing decks for common followed by some new cheaper prefs more efficient cap structure