Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4526868 times)

CONeal

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #40 on: September 02, 2011, 08:57:12 PM »
Wondering with the news today regarding the Fannie and Freddie lawsuit if this is a big step for pfds and better yet getting them back on their own feet.

http://news.yahoo.com/feds-sue-big-banks-over-sales-risky-investments-000212787.html


NEW YORK (AP) — The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.
Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.
The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.
The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.
The government didn't say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.
The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.
It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.
After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.
Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.
In a statement Friday, Bank of America rejected the claims in the government's lawsuits.
Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn't have the needed risk-management capabilities, the bank said. "Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses," it said.
Bank stocks fell sharply on Friday as news of the government's lawsuits emerged. Bank of America tumbled 8.3 percent, JP Morgan Chase fell 4.6 percent, Citigroup lost 5.3 percent, Goldman shed off 4.5 percent and Morgan Stanley's ended down 5.7 percent.
Residential mortgage-backed securities bundled pools of mortgages into complex investments. They collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.
The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that "contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans."
The FHFA filed a similar lawsuit in July against Swiss bank UBS AG, seeking to recoup more than $900 million in losses from mortgage-backed securities.
Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale.
JPMorgan, Goldman, Citigroup and Morgan Stanley declined to comment on the lawsuits. Ally Financial said in a statement said the government's "claims are meritless, and the company intends to defend its position aggressively." A spokeswoman for First Horizon said the bank intends to "vigorously defend" itself.
Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.
"This will be nothing but a distraction to them and the quicker you settle something like this the better," he said.
« Last Edit: September 02, 2011, 09:02:12 PM by CONeal »


twacowfca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #41 on: September 03, 2011, 04:02:48 AM »
Wondering with the news today regarding the Fannie and Freddie lawsuit if this is a big step for pfds and better yet getting them back on their own feet.

http://news.yahoo.com/feds-sue-big-banks-over-sales-risky-investments-000212787.html


NEW YORK (AP) — The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.
Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.
The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.
The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.
The government didn't say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.
The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.
It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.
After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.
Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.
In a statement Friday, Bank of America rejected the claims in the government's lawsuits.
Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn't have the needed risk-management capabilities, the bank said. "Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses," it said.
Bank stocks fell sharply on Friday as news of the government's lawsuits emerged. Bank of America tumbled 8.3 percent, JP Morgan Chase fell 4.6 percent, Citigroup lost 5.3 percent, Goldman shed off 4.5 percent and Morgan Stanley's ended down 5.7 percent.
Residential mortgage-backed securities bundled pools of mortgages into complex investments. They collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.
The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that "contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans."
The FHFA filed a similar lawsuit in July against Swiss bank UBS AG, seeking to recoup more than $900 million in losses from mortgage-backed securities.
Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale.
JPMorgan, Goldman, Citigroup and Morgan Stanley declined to comment on the lawsuits. Ally Financial said in a statement said the government's "claims are meritless, and the company intends to defend its position aggressively." A spokeswoman for First Horizon said the bank intends to "vigorously defend" itself.
Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.
"This will be nothing but a distraction to them and the quicker you settle something like this the better," he said.

This has curb appeal for bank bears, but the economic impact may be little more than a rounding error for F&F if the amounts they got from settlements of similar lawsuits a few months ago is any guide.

What is interesting though from a political angle is that the banks are being sued not by F&F but by F&F's regulator.  During the financial crisis, the Obama administration, and Paulson during the Bush administration, used F&F as a CPR machine to help keep the big banks alive. 

I think this development is most interesting, especially because the Democrat party historically has greatly favored F&F.  F&F used to be ATM machines for  Democrat Party fund raising until F&F sparked the financial crisis by buying and guaranteeing enormous quantities of bad paper, leading nearly to systemic collapse after the Bush administration facilitated the erection of a house of cards by repealing Glass-Stegal.
« Last Edit: September 03, 2011, 04:50:58 AM by twacowfca »

BargainValueHunter

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #42 on: September 08, 2011, 07:50:29 AM »
For those interested:

http://gatorcapitalblog.com/tag/freddie-mac-preferred-stock/

Quote
If you or your organization own common or preferred stock of Fannie Mae or Freddie Mac and would like to join with other shareholders in preserving value for the Fannie Mae and Freddie Mac, please contact me at derek.pilecki@gatorcapital.com or call me at (813) 282-7870. We are organizing and are going to help policymakers in Washington understand the importance of the GSEs to the nation’s housing market. We hope to maximize value for GSE preferred shareholders and common shareholders.
Albert Einstein called compound interest "the greatest mathematical discovery of all time".

BargainValueHunter

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #43 on: October 21, 2011, 04:16:30 PM »
Interesting discussion about a series of Freddie preferreds on Y! Boards (I was shocked too...)

http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_F/threadview?m=tm&bn=62603&tid=2197&mid=2197&tof=2&frt=2

Quote
Converting would be "easy" if it were to go to bankruptcy court and a judge mandates a restructuring arrangement. I doubt this goes to bankruptcy. Usually in a voluntary reorganization, all "classes" of debt, preferred and common as well as vendors owed money, etc. all file motions, fight for their rights and get the most of what they deserve under bankruptcy law. Thus it isn't the easiest scenario, but it is one scenario that could force a conversion.

 The other scenario is where the shareholders of the company (in this case, it would become the US Government) instruct the Board to negotiate to restructure the capital structure with all parties involved. In this case, they would have to offer terms that are better than what preferred shareholders have today without amending the terms of the security. If the offer is good enough to get 2/3 of the vote, then all things are possible. Usually in this scenario, the offer is "You can get nothing in bankruptcy, or you can help this company survive by taking the deal presented (cash, common shares, lower dividend...any number of creative ideas) even if it means less money than is contractually obligated to you.

 There is no rush to do this because all of the redemptions that I am aware of are at Freddie's option (I think Fannie had/has some mandatory redemption dates) and the dividends are not cumulative, so it costs Freddie nothing to sit on the jr. preferred angst and do nothing. However, if common shareholders ever want a dividend again, that is when preferreds will have to be addressed. Jr. Preferreds must be paid the full contractual dividend before common shareholders see their first penny.
Albert Einstein called compound interest "the greatest mathematical discovery of all time".

twacowfca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #44 on: October 22, 2011, 11:13:03 AM »
Interesting discussion about a series of Freddie preferreds on Y! Boards (I was shocked too...)

http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_F/threadview?m=tm&bn=62603&tid=2197&mid=2197&tof=2&frt=2

Quote
Converting would be "easy" if it were to go to bankruptcy court and a judge mandates a restructuring arrangement. I doubt this goes to bankruptcy. Usually in a voluntary reorganization, all "classes" of debt, preferred and common as well as vendors owed money, etc. all file motions, fight for their rights and get the most of what they deserve under bankruptcy law. Thus it isn't the easiest scenario, but it is one scenario that could force a conversion.

 The other scenario is where the shareholders of the company (in this case, it would become the US Government) instruct the Board to negotiate to restructure the capital structure with all parties involved. In this case, they would have to offer terms that are better than what preferred shareholders have today without amending the terms of the security. If the offer is good enough to get 2/3 of the vote, then all things are possible. Usually in this scenario, the offer is "You can get nothing in bankruptcy, or you can help this company survive by taking the deal presented (cash, common shares, lower dividend...any number of creative ideas) even if it means less money than is contractually obligated to you.

 There is no rush to do this because all of the redemptions that I am aware of are at Freddie's option (I think Fannie had/has some mandatory redemption dates) and the dividends are not cumulative, so it costs Freddie nothing to sit on the jr. preferred angst and do nothing. However, if common shareholders ever want a dividend again, that is when preferreds will have to be addressed. Jr. Preferreds must be paid the full contractual dividend before common shareholders see their first penny.

Lots of wishful thinking there.  In a liquidation, the US government's preferred comes ahead of the common and the preferred held by the public.  There's no margin of safety in a liquidation, but in a restructuring politics and fairness come into play.  At this stage, that's what it's about.  Don't expect big news till after the 2012 election.  :)
« Last Edit: August 07, 2012, 12:16:49 PM by twacowfca »

BargainValueHunter

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #45 on: August 07, 2012, 08:09:55 AM »
http://www.businessweek.com/ap/2012-08-07/freddie-mac-posts-1-dot-2b-net-income-for-2q

Quote
WASHINGTON (AP) — Government-controlled mortgage giant Freddie Mac posted net income of $1.2 billion for the second quarter and isn't requesting any additional federal aid for the period.

The government rescued Freddie and larger sibling Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them.

Taxpayers have spent about $170 billion to rescue Fannie and Freddie, the costliest bailout of the 2008 financial crisis. It could cost about $200 billion more to support the companies through 2014 after subtracting dividend payments, according to the government.

This is the fifth quarter in which Freddie hasn't requested new federal aid since it was taken over in September 2008.

Freddie Mac requested $19 million in federal aid in the first quarter. The company received $7.6 billion for all of 2011 and $13 billion for all of 2010.

McLean, Va.-based Freddie Mac said Tuesday that its net income attributable to common shareholders amounted to 37 cents per share in the April-June period. That compares with a loss of $3.76 billion, or $1.16 per share, in the same period a year ago.

It was Freddie's first profitable quarter since the first quarter of 2011.

Freddie's latest results take into account $1.8 billion in dividend payments that Freddie made to the government, its primary shareholder. The company said the gain reflected a decrease in the amounts that it had to set aside to cover potential losses on mortgages as the housing market has improved.
Albert Einstein called compound interest "the greatest mathematical discovery of all time".

twacowfca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #46 on: March 19, 2013, 03:52:35 PM »
We got back in to the preferreds a few weeks ago because it became evident that F&F would post awesome earnings, despite the fact that there is no resolution to the ultimate standing of the holders of the public preferred.

sampr01

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #47 on: March 19, 2013, 04:07:03 PM »
hi twacowfca

are looking it as a trade or for long term investement. Which prefs did you buy FMCKJ or FNMAS or FNMAT. if you don't mind can you share your entry price because they are up more than $1

Thanks

We got back in to the preferreds a few weeks ago because it became evident that F&F would post awesome earnings, despite the fact that there is no resolution to the ultimate standing of the holders of the public preferred.
« Last Edit: March 19, 2013, 04:16:29 PM by sampr01 »

twacowfca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #48 on: March 19, 2013, 04:27:14 PM »
hi twacowfca

are looking it as a trade or for long term investement. Which prefs did you buy FMCKJ or FNMAS or FNMAT.

Thanks

We got back in to the preferreds a few weeks ago because it became evident that F&F would post awesome earnings, despite the fact that there is no resolution to the ultimate standing of the holders of the public preferred.


We generally buy the best bargains measured by discount to stated value.  These are not always the most traded.  We will buy the most liquid if they are not too pricey.  It's more of a trading opportunity with a call on possible future value because a reorganization that wipes out the public preferred seems unlikely.

twacowfca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #49 on: March 19, 2013, 07:09:55 PM »
hi twacowfca

are looking it as a trade or for long term investement. Which prefs did you buy FMCKJ or FNMAS or FNMAT.

Thanks

We got back in to the preferreds a few weeks ago because it became evident that F&F would post awesome earnings, despite the fact that there is no resolution to the ultimate standing of the holders of the public preferred.


We generally buy the best bargains measured by discount to stated value.  These are not always the most traded.  We will buy the most liquid if they are not too pricey.  It's more of a trading opportunity with a call on possible future value because a reorganization that wipes out the public preferred seems unlikely.

 
Congress guaranteed the survival of the GSEs at the end of 2011 when they raised guarantee fees for ten years to pay for a six-month extension of the paroll tax cut.  Today, the GSEs are gushing cash as the housing market recovers and no doubt the politicians will find a way to tap this honey pot to repay taxpayers and fill DC coffers.   When word that the White House was considering the sale of the Gov't preferred to the private market, Senators reacted by proposing a bi-partisan bill that would require congressional approval prior to any sale.  Everyone wants a piece of this action.   
 
The often overlooked asset on the books of the GSEs is the DTAs which have up to now been written down to zero.  But that too may change soon as FNMA is looking to reclaim their DTA to the tune of $62mm which would be 70% of the net amount owed to the US Govt.  I expect FMCC to follow soon with a similar request.
 
http://online.wsj.com/article/SB10001424127887323639604578368443773821834.html
 
There is political risk here, but with the private preferreds trading at 9-12 cents on the dollar it is a very convex risk/return profile.

That's an excellent summary, Wayne.  Also today, Freddy has sued 15 big banks over LIBOR manipulation, asking triple damages be awarded under the Sherman Antitrust Act. Actual damages are estimated to be about $3B.  :)