Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 5100319 times)

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15980 on: October 01, 2020, 09:09:34 AM »
I think big bang could be tough but little bang is a lock. 

FSOC and TSY just said the GSEs need more capital.  TSY's gigantic sr pfd doesn't count as capital, but would if it were converted.  That's the little bang that should happen after election and it also lets Mnuchin and Calabria leave their fingerprints all over GSE reform and consent decree.  I think that happens even w/ election uncertainty.

The lawsuit is a bit harder.

I think they should settle the lawsuits and return the $125B to further build capital (remember the govt would own 98% of this anyway via common position), but if the obstacles to that are too great then I don't see much post-election pressure to settle... There is very little capital benefit and all it does is give Calabria cover from being fired, which isn't TSY's problem anymore.  Meanwhile if they go to court, it probably gets remanded anyway and if the GSEs win then the govt has to fork over $125B (+ interest?), optics be damned.  And maybe the GSEs lose.

But from a recap perspective, it's WAY easier to use those sr pfds as a source of capital via conversion and still have the capital infusion of $125B overpayments out there than the alternative of deeming the sr pfd paid down with a small tax credit on the balance sheet.  That literally does nothing for capital, and takes away two huge  buckets of capital that would be easily tapped.  No reason to create a problem of raising hundreds of billions extra in the markets or retained earnings over time, imo.



typicalvalue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15981 on: October 02, 2020, 01:32:46 AM »
Bloomberg Intelligence (Ben Elliott) on Biden win/utility model/cap reqs attached...

If Calabria is not out of FHFA Biden cannot set the cap requirements, SCOTUS needs to rule to be firable at will

Wiggins

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15982 on: October 02, 2020, 04:42:16 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.

A big argument against Treasury amending the SPSPA in a lame duck session is that Mnooch already missed the best window for doing that, so why would he speed it up now? The delay is intentional as is the continued risible defense of the NWS. He and Calabria have both made it clear they want to hamstring the business of the GSEs (e.g., bank-like capital, reduce their footprint, level the playing field, etc). They're bank locusts. By the way, the capital rule looks like it was taken straight out of the playbook of FM Watch, as it's exactly what they called for. (It wasn't, but it may as well be) As for rewarding shareholders such as Paulson who bankrolled Trump's win, that's already been done by retention of capital which took receivership off the table. It hasn't been fully realized but the die is cast. Further headway for shareholders looks to be SCOTUS-driven. And this is essential because only a SCOTUS win can assure future investors they will be protected. A consent decree is not enough. ACG puts the odds of a favorable SCOTUS outcome at 90%. And a Biden win could see a return to capital requirements that are more realistic. Reduced capital requirements under a GSE-friendly Democratic administration coupled with a SCOTUS win for investors is the catbird seat for holders of preferred. It will take a bit more time.

I predict there will be some downside around the election caused by a Trump loss, followed by pretty massive buying pressure immediately thereafter. SCOTUS oral argument is going to push the prices higher and they'll be back up to 50% by January.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15983 on: October 02, 2020, 06:34:04 AM »
@typical

if there is a settlement of collins and elimination of senior pref, Calabria is on record saying that Seila doesn't apply to fhfa and him..now, he is wrong, but it would take a court to order him out, and that would take time...which gives Calabria negotiating leverage vs a Biden potus. I do expect a deal done lame duck if the election looks up in air or Biden is elected.  I also think that if the election is close enough so that there is more than one battleground state whose result are being contested, we may not have a potus until around inauguration.
« Last Edit: October 02, 2020, 06:35:46 AM by cherzeca »

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15984 on: October 02, 2020, 08:56:38 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.

I think there a couple things to think about with this.

1. When is capital rule done? If pre election sometime after capital plans should be requested which makes it more likely done before end of year. How can capital plans be drawn up with the PSPA in place still? (I get that its a given that the Srs are dealt with in some fashion but once the capital rule is done submission of capital plans should come with or around cancelling of the SRs or the plans will include such.)ACG is saying capital rule is done before end of October which would be great but a part of me asks why Calabria would do that when 4 days later with a Trump win his timeline to work is extended greatly.

2. One would think settling before SCOTUS given the possible outcome AND goal to recap companies would make the most sense in the case of a unknown election outcome. Either way if Trump wins settling before hand takes risk off of the table and Trump does not have to worry about re election risk with helping out the hedge funds. If Biden wins then Mnuchin/Trump have no more political risk because they are lame duck and can help whoever they want on the way out. Mnuchin should just settle it before, what political risk is there after the election?

3. Settling with investors and ending the NWS can happen at the same time with Capital Restoration plan. Any  $$$ given back or not, exercise of warrants, etc, etc will be in capital plan and terms would be agreeable to both sides to end lawsuits. See 1. above again. I think these have to happen at the same time.

4. FWIW the consent decree could be drawn up in days if its not already. That could happen the week of the inauguration if needed.


cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15985 on: October 02, 2020, 09:07:05 AM »
@orthopa

agree with this and I would add one thing.  I don't believe the DOJ wants to argue before scotus on 12/9 if there is any inclination at T to settle...DOJ is a repeat player before scotus and its rep would be tarnished if it is found to be wasting scotus' time by arguing a to be moot case. so if there is to be a settlement, I would expect before 12/9

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15986 on: October 02, 2020, 09:38:33 AM »
@orthopa

agree with this and I would add one thing.  I don't believe the DOJ wants to argue before scotus on 12/9 if there is any inclination at T to settle...DOJ is a repeat player before scotus and its rep would be tarnished if it is found to be wasting scotus' time by arguing a to be moot case. so if there is to be a settlement, I would expect before 12/9

Good point, this may have already been laid out by yourself but wouldn't Calabria be motivated to settle this too as the ruling by SCOTUS would put his position in jeopardy sooner then if separate litigation was taken up?

If so nearly all involved have motivation to settle. Get it over with and raise the capital everyone says you need.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15987 on: October 02, 2020, 09:42:14 AM »
Calabria has no personal interest in seeing Collins decided if the election is Biden or to be determined the week after Election Day. while we all may be wondering what Mnuchin has been doing re the GSEs the last three years, the answer is likely not very much...but he too will see an uncertain election result as motivation to be able to say he fixed the GSEs, as he said he would.  so incentives do seem to line up in a town where personal inventive is power and not financially motivated

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15988 on: October 02, 2020, 10:15:00 AM »
There is no way in hell there is a settlement before the election.  The optics look horrific, especially with the yellow press about Freddie and the Kushner multifamily loans.

I would also be very surprised if there is a PSPA amendment pre-election, for the same reasons.  The reason being it's too to cast as a windfall for security holders.  B/c make no mistake, GSE securities would fly on either (some chance the common could decline on a PSPA amendment but why chance it).

Meanwhile, there is still work to be done.  The capital rule has to be finalized.  Maybe the Freddie stuff is what Calabria means about being bad corporate citizens.

Besides, Mnuchin is basically running the government.  Congress, China, stimulus, the economy, he's doing it all.  Where is the facetime for FHFA and settlement and all the provisions that would probably accompany a PSPA amendment?

Post election, different story.  There is still a month between the election and the Court.  That's plenty of time to settle and in fact the government has settled other cases in the weeks before oral argument, so it wouldn't be unprecedented either.  Then nobody cares about the optics.

typicalvalue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15989 on: October 02, 2020, 10:17:30 AM »
Calabria has no personal interest in seeing Collins decided if the election is Biden or to be determined the week after Election Day. while we all may be wondering what Mnuchin has been doing re the GSEs the last three years, the answer is likely not very much...but he too will see an uncertain election result as motivation to be able to say he fixed the GSEs, as he said he would.  so incentives do seem to line up in a town where personal inventive is power and not financially motivated

Agree. When your rely on admin moving personal incentive is more powerful than financial.