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A Fannie Mae & Freddie Mac liquidation analysis was completed in 2014 by the highly regarded Alvarez & Marsal organization. It provides comprehensive projections of what value both GSEs might have in a 10 year wind down and liquidation.
This report is restricted and I will not reprise its title, content or a link to view it. However, Google may be of help under the following, non-protected search criteria: GSO-FNMA A&M pdf
The report should be at or near the top of the queue of pdf links revealed.
Three key points are noted beyond a profound and highly detailed rationale for recovery estimates which spanned 2014 to 2023 as presented and which could be different today, several years later:
1. Tax policy and DTAs are crucial to amounts possibly recovered in a receivership. Note footnote on value estimates.
2. Common shares could retain considerable value after debtors and preferred stockholders are paid.
3. The warrant issue is HUGE if the reserves run out in December and a receivership is declared. But common investors must dig their heels in on this point or risk getting killed in the endgame.
Reviewing this made me much more comfortable with my admittedly riskier, substantial share positions in Fannie Mae & Freddie Mac common stocks.
Obviously, no investors are seeking or expecting liquidation, but that undesired outcome may not be as lethal as some have presumed based on this excellent analysis. Please respect its proprietary content.
JMHO.
Mnuchin has everything he needs in his toolkit. He just needs to gain confirmation and then pull the trigger. Watt is on record as supporting release. It should be clear sailing.
It is my guess that the court decisions are all locked up waiting for a ruling on the writ of mandamus. Once that is resolved... whenever that occurs.. I suspect things may move very quickly. Then, too, there still remains the possibility that either a settlement will be announced, or, FHFA could simply opt to end the conservatorship making the document release way less impactful to both sides. Fairholme could drop its request or the government could drop its mandamus motion and allow Sweeney to make the next move.
Lots of moving bits and pieces.
I am concerned about some of the stuff I am seeing. But I remain committed to my positions in both preferred and common shares for the mid-term future. The closer we get to December, the more favor I will have for preferred stock, but way to early to make any such decision, for now.
The Congressional Budget Office has long recommended that the affordable housing and duty to serve statutory requirements imposed on the GSEs/FHFA be transferred to FHA where the government would support the cost of its own social programs, eliminating risk to private enterprise GSEs. I predict this approach will be embraced in the new administration to neutralize Democratic objections to privatization as were clearly expressed during debate over the earlier Mulvaney and Blackburn bills that died in committee.
If you read the GAO report to Congress from November, 2016, it contains a strong imperative for release and privatization. This likely will be part of the template for release and would be hard to rebut coming from a non-partisan source like GAO.
JMHO.
You are absolutely 100% WRONG. The highly detailed info presented in the Congressional Budget Office report to Congress goes far beyond the content of public filings.
https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/06-02-gses_testimony.pdf
This report was surely part of the data relied upon prior to Amendment 3 being adopted. I am not saying I support the sweep (which I have always opposed, as you should know), but to claim all the data that led up to it was corrupted or fraudulent is ridiculous.
JMHO.
I'm not saying Mnuchin won't get drilled on a lot of stuff as you mention, but I am expecting very little focus on the GSEs and his likely retort which will be to repeat that privatizing them is a priority and then stating that sufficient effort needs to go into determining what approach best addresses the concern also expressed about ensuring their safety.
When somebody says it requires study, it kinda ends the dialog on specific plans.
I'm sure he will get squeezed on his Wall Street ties, but I suspect the big issues to be Spending Control, deficit, debt limit, tax policy, interest rates, Dodd-Frank, regulation and TBTF posture on banks and other high profile entities.
I guess we will know, soon enough. I think he will be confirmed with some difficulty, but my sense is that Dem pound-of-flesh priorities lie elsewhere.
I agree with you.
You could, of course, be right... but I really doubt it. The GSE issue is important to us, but to Elizabeth Warren or Sherrod Brown? Nah. To Bernie Sanders? Nah. I could see some loaded-gun HUD, FHA or Ginnie questions. But remember their real target is the Big Bank cabal and wealth stratification. FnF are small fry in that discussion.
I wish you were right and hope it happens, but I really doubt that it will.
Mnuchin will face a hardline of questioning. He will only fail if he cracks which would be very unlikely. I'm sure he will have been well coached, especially after harvesting the antagonistic measures directed at Tillerson and Sessions. In the end, Mnuchin is NOT as controversial as those two... or others, yet to come. He will have very little to say about Fannie & Freddie unless specifically and relentlessly put on the spot.
JMHO.
Fellow Travelers? Honest bloggers don't do Fannie Mae websites where only Fellow Travelers gain admittance.
You must need to know the secret handshake to be "in" on the scoop.
LOL.
Dream on. There will be little or no part of Mnuchin's session devoted to the GSEs. He will duck specifics to avoid controversy. And he will be confirmed.
That's simply brilliant! LOL.
"These issues and many others previously mentioned are not noted and dealt with in the bill and so the bill is too simple-minded to address enormity of what is at stake for all involved."
How is this known since the text of the latest Capuano bill has yet to be released?
What is the nature of the "house pass" that Rep. Capuano has, and please provide factual support of exactly what "his favorite contribution to GSE Reform" entails.
Thanks.
To your first point, yes, I am becoming increasingly resigned to expect at least some dilution impact from government warrants. I have never understood why so little legal attention was focused on HERA and SPSPA issues. I wouldn't be despondent if common shares rose to from $12 and $20 dollars. That is still a great delivered return, if it plays out that way. I still think that anything taken by government in excess of the cost of the bailout is hard to justify; we'll just have to wait and see on that one.
On your other point, I'm not concerned about the offload. Could easily be changed under new leadership or new directives. Could also tend to reduce the amount of recapitalization necessary to regain fully privatized status, so maybe there's a silver lining there?
Good day to ya!
My bad. I started the thread which expresses concerns over Mulvaney and prior legislation he proposed that could reveal a mindset detrimental to shareholders. To me, that is what matters to the conversation relevant to Fannie Mae and Freddie Mac. I disavow my earlier statement since it is such a distraction from what is really of investor importance. Bad Yank. LOL.
The Mulvaney Bill as originally proposed would be a disaster for common shareholders for at least 5 years of additional purgatory.
That was my opinion earlier.
That remains my opinion today.
Please see my post #338252 for background.
The bill was supported by fiscal conservatives and by Investors Unite. Minnesota Congressman Ellison and California Congresswoman Waters initially opposed the bill on the basis of the impairment of The National Housing Trust. There was extensive discussion of amending that bill to include a $1 B per year contribution from each GSE, as occurred with the earlier Blackburn Bill that likely would have satisfied that concern, though that is opinion.
What is more important is the content of the Mulvaney bill as it could very likely become the working strategy in the new OMB under Mulvaney's leadership. No guarantees on that, but it is not an illogical conclusion.
I have been an opponent of the Mulvaney Bill since its announcement. I held a highly negative view of its effective initial impact on common share price based on its lengthy process of recapitalization, the amount needed to recapitalize and its mandate to exercise warrants and impair S/P via an 80% dilution. I actually anticipated a $1.20 S/P if this bill were ever given a green light as proposed by Mulvaney.
The full text of this bill is scary.
https://www.congress.gov/bill/114th-congress/house-bill/4913/text
I am more concerned about the Mulvaney Bill. Among other things, it bore specific directive for the U.S. Treasury to exercise its Fannie Mae and Freddie Mac warrants in his recapitalization plan
https://www.congress.gov/bill/114th-congress/house-bill/4913
This bill received major support from housing groups and also from many on this board when it was introduced. It is just one more part of my concern over warrants and dilution in a settlement that initiates with a meeting of private capital "players" and the new Trump team.
Are you claiming that The Congressional Budget Office committed accounting fraud in their assessment that the actual cost of bailing out the GSEs was $317 billion?
Are you claiming that the CBO was a participant in a criminal accounting scheme to defraud Fannie Mae and Freddie Mac investors? Were they in cahoots with PriceWaterhouseCoopers and Deloitte & Touche who you previously accused of similar criminal activities?
This is really getting interesting!
Best of luck to you, stinky.
I am concerned, but holding firm on both preferred and common shares for the time being.
The Congressional Budget Office disagrees with your financial interpretation.
http://www.cnsnews.com/news/article/true-cost-fannie-freddie-bailouts-317-billion-cbo-says
This is just one of many analysis pieces crafted during the lead in period to the imposition of Amendment 3.
Never forget... Jacob Lew was Obama's director of OMB in he period preceding his ascension to becoming UST Secretary. He crafted the rationale that became the raison d'etre for Amendmnt 3. These are NOT unrelated events, IMHO.
I'm just saying...
Could it be hedge fund investors?
http://www.newsmax.com/finance/StreetTalk/ackman-save-f-and/2008/07/16/id/324575/
No, I posted no false information. I posed a concern based on a well publicized debate between the CBO and OMB regarding the status of the GSEs.
The discussion had been about whether or not exercising warrants would, from an accounting standards perspective, require government to move FnF's assets and liabilities onto its Federal books. The court decision may or may not matter a bit when it comes to FASB regulations.
I have been stating concern for many weeks about apparent momentum for government to exercise the warrants and dilute Fannie Mae common stock by 79.9% by adding over 4 billion shares to the outstanding share pool. Part of my thinking has been the hope that this accounting concern and its impact on the Federal Debt Ceiling might be a deterrent to the warrants being exercised.
I do NOT want the warrants exercised. Unless FASB standards are changed, the push down accounting deterrent appears, sadly, to be toothless. I'm not sure what part of that position would be problematic to any shareholder.
I was aware of the divergent opinion between CBO and OMB. But I did know the status for legislative rulemaking reposed with the OMB.
Thank you very much for that information.
I believe FASB also made a change to push down practices in December, 2014 that may have vacated the old percentage parameters.
Let obiterdictum clarify or disclaim this, too.
https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/us2014-08-pushdown-accounting-optional.pdf
The link is from Freddie Mac's auditor PriceWaterhouseCoopers in December 2014 under the search term: push down accounting FASB as found on Bing.
JMHO.
If the government exercises the warrants and takes over 79.9% of Fannie and Freddie, does this mean the GSEs then become part of the government and, thus, that Circuit Court ruling would be meaningless as inapplicable?
Please clarify.
Are you sure?
I believe that the Congressional Budget Office concluded that both Fannie and Freddie were to be considered 100% government agencies after Amendment 3 required 100% of their profits to be swept to government. By recollection that decision was not based on warrants, alone.
JMHO.
If you read obi's earlier post, it seems that 79.9% ownership invokes no balance sheet risk to government for push down accounting. I will say that I seem to recall the House Budget Office disagreeing with the roughly equivalent position put forth by the White House Budget Office that emerged under Obama's term of office.
If I remember correctly, their CBO view was that a 100% sweep of the GSEs income made them 100% government agencies and, as such, their metrics should be included in the Federal Budget.
Then again, I am constantly reminded that I am wrong about everything, so who knows?
Icahn and Ackman have two entirely different equity positions and, hence, likely different goals in steering any settlement. Ackman acquired many of his common shares at market low points. Icahn did his deal for around $4/share, from my recollection. As a hypothetical, If I was all in on 100+ M shares at a buck or so, I might be somewhat cavalier about government retaining warrants and equity dilution only netting $20/share. Icahn might not feel the same way, having so much higher an entry price.
I bought commons way closer to Icahn's cost than Ackman's. I'd rather have Carl represent my stake at the bargaining table if a settlement is to be cobbled together.
JMHO.
I never said Ackman should "turn and be anti common shareholders now."
However, Ackman's position prior to conservatorship is actually at odds with many of the pending claims awaiting actions in several courts. He claimed the GSEs were under-capitalized. That sounds a lot like support for the initial conservatorship. He recommended that all common shares be cancelled. That sounds a lot like support for warrants not being that important. Those positions would be hard to reconcile with his impartiality in steering any settlement where such beliefs could be detrimental to the positions of other stakeholders.
Maybe he is fine with the government keeping warrants. Maybe he is happy with a S/P rising to $20 for common stock. Maybe he needs the money, right away.
I have a different expectation. I do not want the 79.9% dilution. And I seem to find myself one of very few that are fighting against it.
JMHO.
Regarding Ackman and his role in both litigation and any eventual settlement agreement, I would not expect to see him in the forefront other than on the Amendment 3 aspect. He was short the stock before conservatorship and publically advocated cancelling all the common shares and building a bullet-proof balance sheet in a total recapitalization effort immediately prior to the conservatorship being imposed.
JMHO.
$12-20 with warrants, $60-100 without warrants in 2017.
I have posted this before. I have not changed my mind.
LOL. You rascal!
Very interesting to me that this article is corroboration of what I recoiled against when I stated concern for the preferred shares simply being retired at par for some alternative form or recap. Now I'll wait for the comments that my conclusion has no basis in fact and I am somehow full of shit.
No, I am not selling my common stock and I really do not want to get that disaffected with FNMA or FMCC shares. The big gains will come from a common share investment, if it finishes in the money. I am only expressing concern for what I sense is a possible inside game being played by some guys with big money and possibly bigger aspirations than just RRR for Fannie & Freddie. I have been through too many restructurings where the little guys got cut out in the 11th hour and the sharks got everything. Never forget, hedge funds "eat their young".
The really angry replies and very evident disdain I recently see posted here in response to my expressing concern only give me greater reason to remain wary. There is a 5X payout differential on common shares with warrants cancelled vs. warrants exercised (subject to some possible modifications in things like strike price). Why are people angry about my concern here? Why do they see nothing ominous on comments that recapitaluiation is simple for Mnuchin... just get the money players like Hindes, Paulson and Berkowitz, but not the banks, together and have them put it together.
That's part of what I recall reading recently. Could have been an article.Could have been on a blog. Could have been from Howard, or Fiderer, or Maloni, or Pagliara.
THAT is some scary shit.
By recollection, there was no settlement for damages awarded by Judge Wheeler. His decision was that had the government not acted to save AIG, the shares would have proven to be worthless, anyway. An appeal of that decision is still pending.
There are differences between AIG and the GSE's warrant scenarios, notably the statutes under which they were conceived. But one historical tidbit that I do find of interest is that in AIG, government exercised and sold warrants for about 70% of equity and recovered around $22 B after selling 5 or 6 tranches over time. Compare that to Ackman's conservative estimate of a $20 Fannie Mae S/P after release from conservatorship. With the exercised warrants equivalent to over 4 billion shares, that would bean additional $80 B to flow to UST on top of the surplus already paid back. And that's just the Fannie total, so add like another $40 B for Freddie where the same warrant arrangement reposes.
I think jeddiemack laid out this insanity well in his post from last night. This is just an inexplicable reward to government for the bailout effots undertaken.
As always, JMO.
I evidently wasted 4 hours today doing retrospective research and trying to further a discussion of warrant strategy considerations among key players and possible hedge fund motives and plans for privatization of Fannie Mae and Freddie Mac.
It remains my opinion that there are causes for concern for smaller shareholders that some settlement is being orchestrated that may favor some vs. all in that stakeholder class. It is my further concern that the PWC settlement that netted no gains to anyone other than lead plaintiffs in that case may become the bellweather outcome in other cases, yet to be decided. In the most simplistic terms, that means that I fear that only the big hedge funds and lead plaintiffs may see any substantive payday from the resolution of Fanniegate and very little benefit may flow to the smaller investors such as myself.
I find clues in both articles I posted earlier as to why my concerns may be justified. You see none. Your right to do so. And my right to say goodnight and good luck to you.
Here is a second article to contribute to the conversation, especially the aspect of the warrants.
https://www.ft.com/content/a661d6fe-b205-11e6-a37c-f4a01f1b0fa1
The link is also available on Bing under "Fannie and Freddie investors look to Trump" from the Financial Times publication.
I will continue digging for more, time permitting.
The issue of warrants may not be the primary focus of the majority of lawsuits, but it seems to be near the top of the priority list for many investors active on both this and other discussion forums. It has been an almost dominant and, frankly, somewhat explosively debated topic on th717 over the past few weeks.
Howard's comments, to me, are suspiciously corroborative of much of the content in Bruce Berkowitz's initial Fairholme Offer. That is just my opinion. Howard is also an advisor to Fairholme, from my recollection.
I hope your prediction on warrants entering the public forum proves to be correct. Conservative political doctrine has always supported a separation between private enterprise and government. Unlike FDIC conservatorships which have been around long enough to be understood and accepted by the public, the conservatorship of the GSEs has never gained adequate public scrutiny or political importance... my opinion, once again. Perhaps 2017 will be the year when this changes, something I would surely applaud.
Confirmation votes on the most controversial nominee-designates will get pushed out until after the Inauguration so that any ties in the Senate process will be decided by the tie-breaker, Mike Pence, as the new President of the Senate.
I view very few Trump nominees as having anything more difficult than an uncomfortable grilling from Dems before gaining approval. These hearings are always more grandstanding for the C-Span TV audience than serious vetting. I think that Mnuchin will sail through with minimal difficulty. Tillerson, maybe not so easily. Mulvaney is a slam dunk. Ross is a slam dunk. Sessions is a slightly harder fought win, only because of John Lewis's objection which holds some gravitas... but not enough to reject him.
Trump's Energy and EPA selections are likely to be the sacrificial lambs in the process. I also think Carson will have some jeopardy based on lack of relevant experience, but remains likely to gain confirmation over some serious reservations over qualifications.
JMHO.
Thanks for the stroll down memory lane. I got out of Exide with about a 60% gain on a swing trade when the weather went subzero in Europe and battery failures went nuts, then sold when the Grand Jury was announced for the Vernon environmental mess. But fear not, because I lost a fortune on another of detearing's surefire picks, Newlead.
I am concerned here because I am pretty much "all in" between positions in both preferred and common shares. As is my style, I am deeply researched into Fannie and Freddie and I see MUCH more optimism for big gains vs. total losses here. But I have been wary for some time when so much of the public dialog was being advanced by plaintiffs or plaintiff proteges in lawsuits targeting government's role and motives in Fanniegate. Then I became more concerned than just wary when so much of the discussion ratcheted up to outlandish conspiracy theories that seem to stop just short of blaming FHFA for the death of Jonbenet Ramsey.
Now we have the lead Fairholme attorney coaching the Attorney General Designate on gaining confirmation to defend against his lawsuit? Is this the ultimate recruitment effort for Fellow Travelers?
I'm not making any allegations on anything. But I am watching events like a hawk. I have a lot of $$$ riding this horse.
JMHO.
I have no problem with preferred shares being redeemed and retired at some point. That would be a normal business decision that could make sense under many sets of economic conditions, especially in a falling interest rate environment. All investors know this. I would celebrate a liquidation @ par at some point since my holding costs are WAY below that threshold.
That would be a business decision. What I am outraged over is the possibility that all preferred shares could be cancelled at par so that new preferred shares can be issued in a NEW COMPANY that goes to new investors that put up the money for recapitalization via some backroom deal between Treasury and litigants.
If approximately one third of the recap is only going to pay off original preferred investors and serves no role in recapitalizing reserves, why do it? Other than to take over control of the company, in this case using political vigorish and crony capitalism of the basest sort?
I am concerned. It is not an allegation, just a concern at this point. And all just my opinion.