FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[investorG]

the Mba cohort is pushing for legislative reform to occur before recapitalization.   

does this view hold water?  or is it better to get going on the recap in December as a catalyst / spark for legislative reform (my view)?

in theory, the potential for action would open after the congress recesses for the year in December.

mnuchin appears conservative on the matter to date.  but the moelis / paulson / schwarzman group is quite close to trump.

[investorG]

Partial conversion of prefs...  I wonder what percentage of prefs will convert vs. the amount that will not.  I wonder at what percentage of par the conversion will take place. It will also be interesting to see at what price (relative to par) the non-converted prefs trade in the market.

Specifically, I'm curious about FMCCL, FNMAH, and FNMAS.

I know it depends on dividend rate, when the dividend might be re-instated, etc. but (1) what are your thoughts on where these three securities would trade if NOT converted?  (2) Would yield even matter for conversion terms, settlement terms, etc.?


Thanks in advance for your input!

these are good questions with no easy answers.  (obviously much of this is premature at this point). 

it likely depends on if there are guidelines set out in any plan as to if / when dividends would be restored.  if they want a healthy conversion rate of pref to common in the Moelis plan, then they might make dividend re-instatement murky to prevent people from holding out. the jr pref securities would likely trade below par, with some differential between them (as is now) based on yield.   there's also some chance they could target only select series for conversion.  in terms of yield mattering for conversion terms, i'd guess that it's a tradeoff between simplicity (treat them all equal) and precision (modestly better terms for higher yielders).

[cherzeca]

all junior pref holders should have mindset they are holding out for par, whether by being called or in a conversion rate that they like.  I don't see treasury doing a re-IPO of common without being able to pay dividends on common, and this will only happen if dividends are turned on for prefs (which will cause them to trade to par...or even at a premium in cases of high div rate) or the prefs are "convinced" to convert, or they are called and paid out at par.

we are par-seeking missiles

[rros]

all junior pref holders should have mindset they are holding out for par, whether by being called or in a conversion rate that they like.  I don't see treasury doing a re-IPO of common without being able to pay dividends on common, and this will only happen if dividends are turned on for prefs (which will cause them to trade to par...or even at a premium in cases of high div rate) or the prefs are "convinced" to convert, or they are called and paid out at par.

we are par-seeking missiles

This makes sense.

[rros]

the Mba cohort is pushing for legislative reform to occur before recapitalization.   

does this view hold water?  or is it better to get going on the recap in December as a catalyst / spark for legislative reform (my view)?

in theory, the potential for action would open after the congress recesses for the year in December.

mnuchin appears conservative on the matter to date.  but the moelis / paulson / schwarzman group is quite close to trump.

Mnuchin is on record saying any serious talk of reform requires companies to have capital first. But this was in the early days, before radio silence.

[Eye4Valu]

https://www.wsj.com/articles/mortgage-industry-braces-for-trump-administration-to-make-changes-at-fannie-freddie-1541955600?mod=hp_lista_pos5

[Luke 5:32]

Thank you to all those that replied to my questions.  Much appreciated!

[cherzeca]

https://www.wsj.com/articles/mortgage-industry-braces-for-trump-administration-to-make-changes-at-fannie-freddie-1541955600?mod=hp_lista_pos5

this article seems like an MBA plant.  worthless, but thanks for posting eye

[rros]

Chris, can you expand please? Not positive that the WSJ officially confirms the admin route? I could not read it.

[investorG]

the Mba cohort is pushing for legislative reform to occur before recapitalization.   

does this view hold water?  or is it better to get going on the recap in December as a catalyst / spark for legislative reform (my view)?

in theory, the potential for action would open after the congress recesses for the year in December.

mnuchin appears conservative on the matter to date.  but the moelis / paulson / schwarzman group is quite close to trump.

Mnuchin is on record saying any serious talk of reform requires companies to have capital first. But this was in the early days, before radio silence.

ok, thanks.  Mnuchin has accomplished very little in the first two years (most give tax reform credit to Brady, cohn, mcconnell, trump, etc.) and so hopefully his pencil is sharpened for this. obviously he's a smart man and few know more than him on this matter. 

there's also a chance they need to try to keep the housing market in decent shape, rather than bank-pleasing tinkering, to offset headwinds elsewhere.