Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 5091148 times)

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15970 on: September 26, 2020, 06:47:21 PM »
I have been researching ACB's writings, mostly law review articles, to see if I can understand her judicial philosophy and glimpse how she may regard the Collins case.  In doing so I came across this podcast, which is illuminating...rather than gleaning how she judges from opinions and law review articles, she comes right out and tells you in this speech how she judges:  https://podcasts.apple.com/us/podcast/madisons-notes/id1515595812?i=1000491179632


Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15971 on: September 26, 2020, 07:06:39 PM »
It's really starting to look like 4% come hell or high water, and that Calabria really does see 4% as the de facto requirement rather than 2.5% with some buffers being nice. The question becomes "can FnF raise their g-fees enough to provide a competitive RoE on 4% without driving away a substantial amount of business?" Tim Howard thinks the answer is "no", and if he's right then all of recap and release is in jeopardy.

Calabria has said in the past that one way FnF can meet their capital requirements is to shrink their asset base and market share. Heck, this might have been his goal all along.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15972 on: September 26, 2020, 07:10:58 PM »
"...all of recap and release is in jeopardy"

focus on the transition period. how long are the GSEs given to hit the capital target? indeed, if they are in consent decree, why impose a termination date? I would rather meet 4% over a long (unlimited period) than 2.5% in a short period.

sholland

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15973 on: September 27, 2020, 02:47:49 PM »
Seems to me that it might take ~10 years to reach the 4% minimum leverage ratio.  Even if g-fees are raised it will take time for earnings to increase across the entire book of business.  Many comments suggest that private capital investors will be unwilling to invest the substantial equity capital needed if the re-proposed capital rule is not changed significantly. Like Tim Howard, Iíll also be very interested to see how Fannie and Freddie, and their financial advisors, react to where Calabria appears determined to take them.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15974 on: September 27, 2020, 04:29:14 PM »
"...all of recap and release is in jeopardy"

focus on the transition period. how long are the GSEs given to hit the capital target? indeed, if they are in consent decree, why impose a termination date? I would rather meet 4% over a long (unlimited period) than 2.5% in a short period.

I don't think it's an either/or at all. Raise enough capital to get to 2.5% ASAP then let retained earnings, plus more small capital raises if necessary, complete the journey to 4%.

The problem with allowing the capital raise to go slow is that it defeats the entire purpose of wanting FnF to have substantial capital at all. The longer that FnF have little capital, the longer that taxpayers and the housing finance system are at risk, and the severity is tied directly to the capital amount. Elsewhere I have said that Calabria not pushing for his regulatory minima ASAP is a dereliction of his safety and soundness mandate, and I still believe that is true.

Something else to keep in mind is that if Calabria ends up finalizing the rule largely as-is, it could very well mean that he is following the advice of the FAs rather than ignoring it, and that investors with substantial capital really are willing to put up their money for FnF equity in these circumstances. Calabria doesn't need to attract all investors, only enough to get the job done.

I still think that propsective FnF investors might care more about ROIC than ROE, and on a ROIC basis FnF's current earnings are enough.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15975 on: September 27, 2020, 04:35:37 PM »
so I put nothing past Calabria. he's very smart, but he has never held a real job in his life, which makes him dangerous.  however, you would think that he has had discussions with GSEs' financial advisors by this point and has gotten some indication of what they think is doable in the capital markets.  but as I said, he is dangerous...

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15976 on: September 28, 2020, 06:52:56 AM »
"Calabria doesn't need to attract all investors, only enough to get the job done."

Yes.  I think the TH camp of " more capital means higher prices to keep ROE constant and attract investors" misses reality of raising capital.

And there IS an investor standing by that can get the job done to 2.5% overnight.  The Treasury.  He only needs to attract Treasury's cooperation.  Then the rest can be retained over time and other private market ways (exchange prefs into common then sell new prefs to berkshire), NONE of which involve an ROE calculation...

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15977 on: October 01, 2020, 07:50:23 AM »
Hmmm, interesting tweet from ACG...

https://twitter.com/ACGAnalytics/status/1309598464674869249
Full remarks from @MarkCalabria at #FSOC. Says they found adequate capital could be materially less:

Nevermind.  ACG just told me they posted this erroneously.
"Way maker, miracle worker, promise keeper..."  God is a promise keeper. You can rest in the hope and assurance that He is true to His word.  But it is also a warning that He will keep His promises to those that choose a life of unrepentant sin. https://www.youtube.com/watch?v=XCpbeVFgs4E

Jcmeg35

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15978 on: October 01, 2020, 07:57:05 AM »
There has been some discussion during the summer around the idea that if Trump were to lose, Calabria and Mnuchin will reverse the NWS, make a deal to settle litigation, and do a consent decree to ensure the work doesn't get undone with a change in administration. With the prospect of a contested election and no clear winner for 1 month+, I would think that this situation would put such a "big bang" event in some level of jeaporday. Curious to hear others thoughts on these risks.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15979 on: October 01, 2020, 08:25:55 AM »
Bloomberg Intelligence (Ben Elliott) on Biden win/utility model/cap reqs attached...
"Way maker, miracle worker, promise keeper..."  God is a promise keeper. You can rest in the hope and assurance that He is true to His word.  But it is also a warning that He will keep His promises to those that choose a life of unrepentant sin. https://www.youtube.com/watch?v=XCpbeVFgs4E