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The paper doesn't really specify. It just says pay Treasury what is owed. I guess that is open to interpretation...
I guess I am not smart enough to read between the lines... and I am awful chess player lol. But it is interesting that we have diverse views.
Joseph, why do I think that Treasury may have had some input in this proposal? They look like the real winners.
After an initial reaction this plan may get some unexpected support.
for us it may be time to be self selecting out, no need to wait until the end of the line.
Current commoners may have a shot at small chunk of the Newco. But if the rights work as they normally do, commoners may have to pay to exercise whatever rights they may get to acquire new common shares -as it usually happens- at a discount.
True that a rights offering will dilute but it simultaneously adds capital which may be semi-permanent: once rights are exercised the resulting shares will not trade for a pre-determined period.
Obit, with all due respect, I do not think this is a pump. The way Jrs. trade tomorrow will be the tell tale.
5, have you read the details of the plan?
1, Biforcation of bonds - not so easy to startup
What do you mean by this? Are you referring to the bonds the NewCo plans to issue to finance their operation?
2. Common has no voice, so the FHFA 'voice' speaking for them will NEED to give them *some* value. Will they be happy? Who knows, but they better end up with something. More headaches and lawsuits.
Current common stays... half dead. And to participate in NewCo current common will most likely have to pay.
3. CSS may not be ready for a while. End-game for jr. pfds. may also be a year away.... don't spend the profits, yet. No dancing.
According to DeMarco CSS should be operational pretty soon and the HF plan speaks of June 2014 as cut off date.
4. Congress / FHFA / Obama / Press may scoff (some are already) at HF trying to make some coin.
Under the HF plan it's Treasury who makes very larger coin, very quickly.
Letgo, how many years did it take for those many shares to appreciate? Do you still think that anyone of us can think of our investment as a "quick payout"? As far as I can tell I didn't have as much grey hair then. And I used to wake up in the morning without any back pain!
Anyway, have you read the details of the proposal? No dividends for 5 years after conversion. And -I believe- no possibility to cash out. So a delayed windfall. But I may be mistaken.
That's funny. But...
in my view,
at the center of this proposal is the message that there won't be any quick payouts to anybody -except Treasury- and no rich-quick scheme for the Jrs. Whoever thought of this plan made absolutely sure that politicians will have little to dislike. Even after a -perhaps- first bad impression.
Corleone always got what he wanted. Here, instead, the conversation is "nobody will get everything they want (but Treasury)".
Am I understanding the plan correctly? If so, we should see the Jrs. to continue to prosper.
What’s in it for common stockholders?
hey buddy we are talking finance, not a charity. you are not doing a favor
The HF proposal is a good plan.
I would not be surprised to see that it falls within the main Republican aspirations and strangely, to many of the Democratic ones too. But some are more winners than others. If I understood the outline correctly, current common may not benefit as much. It will continue to exist as a 20.1% of the "old scheme" together with Treasuries 79.9%. Jrs., instead, will become the new common stock for the Newco. Jrs. in turn, will also have restrictions. Again, if I understood the plan correctly, there won't be any kind of distributions for the first 5 years and no possible exit. Not sure how to take this last part but it could also be that the new common shares may not trade for 5 years. Thus, the capital infusion is semi-permanent.
These are all good ideas, in my view. They add solidity to the proposal and erase any doubt as to a quick payout for the Jr. holders. It also appears that the plan has been conceived taking into account the whole universe of Jrs., so no distinctions between *theirs* and *ours*.
The rights offering will be done to benefit the Jrs. I imagine that additional common shares of the Newco will be offered to already owners of the Newco (all of us) at a slight discount. This is where the expectation of additional 17+ billion comes from. I can see 100% of all HF with Jrs. position opening the wallets to buy more new common at a discount. If any of us can't or do not want to convert rights into new shares, the rights could be sold in the open market (I am going through right now with STXS, company who have just issued rights that trade in the marketplace under the symbol STXSR). The rights offering inherently speaks of long term investments so it also adds validity to this proposal.
In the end, the old Fannie and Freddie disappear under the plan. And the Newco will compete with any entrants with or without government guarantees.
What is fascinating about this plan is that Hedges want to pay Treasury for all what is owed. If I understood correctly, that is the full 187 billion. And it also honors the 79.9% stake in the old scheme. And until Treasury is paid in full, the 10% dividend applies. So Treasury rakes in: 10% dividends, additional 187 bill and whatever they can obtain from their 79.9% stake from the run-off business + all profits from the legacy portfolio which now has a majority of great holdings (mortgages bought that were written after 08').
I still have to find something that both Republicans and Democrats may not like about it as it does not interfere with the 30Y mortgage and social programs (FHA, Ginnie and other agencies can pick up that) neither with the securitization platform which remains under government control.
Please comment as I have only read it superficially.
Interesting. Will do some reading. Thanks.
Taint, thank you for being honest. There is at least one member in this forum (or maybe Y or G) that would have pumped the sheit out of it only to inform the board -after the fact- he no longer has holdings or just a few. And it's not Joe stock.
Joe, so you are really thinking that -the investor group- by buying in the open market certificates of Jrs. and then painting them of green color they become different than ours which are still grey? Really? Are you really believing this? Do you think hedge funds' Jrs. are *special*? Have they bought those in a hidden century old market in El Cairo? Did their shares traveled in the Mayflower? Were they issued by Columbus?
The Treasury has no legal authority to liquidate Fannie and Freddie. That authority has been granted by Congress to the FHFA via HERA 2008. It is FHFA who decides whether the route continues to be c-ship, r-ship or exit. And only under specific circumstances FHFA will claim receivership. I am not saying it cannot happen. Congress too can come out with a bill that includes a short receivership transition scheme prior to overhaul. Or Congress could amend HERA 08. What Treasury can do is to terminate its funding commitment and this will create a technical issue as the companies are under-capitalized. This, in my view, will be suicidal.
Shareholders' powers and rights were not ripped off. The conservator "stepped into the shareholders' shoes" and became *the* shareholder.
So what is the recourse for the original shareholders if the conservator works against their interest?
Thank you, Obit.
So Obit... what is your opinion regarding Mr. Epstein's counter-argument that *the* shareholder (Conservator) failed to act on behalf of "them"? Therefore, regular shareholders have a valid claim against the FHFA which overrides the fact that the Conservator has succeeded all rights.
I think 5bagger is correct. The "ripe" issue is a reference to a particular case (Washington Federal). Check the link by Georgenips (thank you), section IV subs D1 and D2 "Plaintiffs’ Claims Are Not Ripe For Judicial Review".
Simply put, the question of whether the Government has “taken” or “exacted” any money from plaintiffs is not ripe because the issue is “contingent [on] future events that may not occur as anticipated, or indeed may not occur at all.”
The ultimate effect of the conservatorship and Stock Agreements on the Enterprises is unknown, and any loss of share value allegedly stemming from these actions is purely hypothetical and speculative.
At a minimum, the conservatorships must end before the plaintiffs’ claims can ripen.
Makes sense.
My interpretation of that paragraph is that it relates to the DTAs, specifically to the last sweep that is pending accountability. Government says "it hasn't happened yet, so no takings". So Epstein says that the whole point for the lawsuits is to stop "the transaction" before it takes place. Or risk having the government saying "too late to reverse" at a post-date.
Unbelievable the government states that they went for the sweep because they weren't sure Fannie and Freddie could pay 10% in dividends. More than anyone, they must have known what was coming (reversal of loss reserves, DTAs activation, recoveries, etc.). Heck, Bronte Capital, Gator and many others knew it years ahead!
Great read! Thank you.
I think the control was needed more as a backdoor bailout for banks. Or that was the perception when the shees hit the fan. They knew the second lien mortgages had little to no collateral and a credit crunch would ensue.
Jrs.' claim and commons' claim is secondary to taxpayers'. A better option will be to use the excess funds to continue to pay back the Srs. This too, I think, will breathe new life into equity. We may not see divies for a while though.
T. Olson and crew are key in terms of getting Jack Lew to replace the 3rd Amendment.
I totally agree with this view and the comments about DeMarco. He finds his cover in the political momentum against Fannie and Freddie. We are last in his list, if at all.
What has banking law to do with Fannie and Freddie? Are you saying that FF were/are just like banks?
Joe, without trying to sound.. ehem... self-righteous, I am not sure about this sentence:
The gov could not just make a large loan as that would have put them into insolvency even more.
Well... it was unintended, so I apologize. I probably mixed my general view with the response and it came out as a straight answer to you.
I actually agree with your view that the GSEs (or Fannie as per your post) have been the least offenders. Did I get this part right?
The problem with your posts or responses is that an interesting message gets lost in a sea of self-righteousness. I may misinterpret someone but you sure know how to piss people off.
taint, I can't do pm's.
What's your email address, please?
Reality is without GOV cash - FNMA would have had to go Ch 11 and kill equity 100%
I was not talking right or wrong
What we need...
We need many, many more shareholders. We need many more hedge funds taking positions. We need pension funds, investment houses and money managers acquiring large stakes of both common and Jrs. We need 10 times the Perrys, Colonials and Berkowitz of this world in it. We need lobby groups, the home builders assn.,powerful real estate groups all acquiring large stakes. We need critical mass.
Critical mass that will tilt the balance and send a message. A mass that Congress will not want to upset.
Exercising the warrants carries risk. Although GSEs' debt may not go into federal books it gives the Treasury a "permanent, controlling stake" as a shareholder. This alone will be seen in courts as one feature of "nationalization". Even without Fannie and Freddie's debt as part of the government budget. It is a "conceptual" issue as per court past judgements. Judgements that held that Fannie and Freddie were and are private entities because of lack of permanent control by the government.
The court reasoned this way:
conservatorship = temporary
unexercised warrants = no controlling stake
Therefore, GSEs are not nationalized companies.
Unless there is an announcement of exercising warrants to later auction blocks, I would be worried.
He actually IS saying that. He currently says -have to find the statement- that both companies rely on the Treasury's commitment to stay afloat. Which is technically true. This is why Perry's lawsuit is of critical importance.
As for why DeMarco is not ending the conservatorship? First, because of the above. He can't. But everyday I am more convinced that he does not want to. That he is entangled in politics and has fallen for the game. So he relies on Congress for reform to avoid going back in time. Perhaps, DeMarco wants some kind of outcome that includes receivership as a continuation of the conservatorship.
An alternative interpretation could be that he is simply trying to extend conservatorship as much as possible as it acts as a shield for the companies. Conservatorship is what protects them from Congress, unless Congress acts. HERA 08 left Congress out. So DeMarco stays put and tells Congress that the ball is in their field knowing that there won't be any new law signed anytime soon. Thus, HERA stays.
a year ago they would have offered to buy out pfds at 50 cents on dollar
the GOV could still do that while the fate of FNMA is in doubt -
There were actually 2 blocks of 250k shares at that price. Here are the sequences...
100 $6.95 @ 10:39
520 $6.90 @ 10:40
75,000 $7.00 @ 10:41
1000 $6.89 @ 10:41
250,000 $7.10 @ 10:41
4060 $6.80 @ 10:54
2500 $6.88 @ 10:54
75,000 @6.79 @ 10:58
2000 @6.84 @ 10:58
18,000 @6.84 @ 10:58
250,000 @7.10 @ 10:59
You have a good broker, obit!
I have shares locked up with a GTC sell limit order priced far away from the current market price to prevent shares from...
The lawmakers are at a loss when the whole of the working parts of the housing finance industry and system is considered.
The "retained portfolio" is a reference to the retained mortgage investment portfolios owned by the GSEs. The current mandate is to reduce it to 250 billion but none of the legislation being considered in Congress allows for a specific amount. Corker's "allows an amount such that can facilitate the wind down" (paraphrasing). Unfortunately, no alternative is being discussed -in Congress- that will have the GSEs keep their investment portfolios. This could change. But one day the PSPA will conclude and although it is not clear what will happen afterwards the tone of the discussion is "no investment portfolios".
Today's guarantee has become explicit. I cannot fathom the idea of shareholders being the beneficiaries of the government guaranteeing. Unless warrants are executed and Treasury becomes a de-facto controlling shareholder. Then, shareholders will still be beneficiaries but to the tune of 20.1%. This, in the present climate, looks controversial.
One would hope that Fannie and Freddie survive in some form thus being able to re-insure, securitize (through 3rd party) and maintain a reduced investment portfolio so that there are enough sources of profits for the long term. However, one important and valuable function is being stripped off them (securitization) and it is not clear whether they will benefit from it or for how long or if shareholders will share any benefit coming from the platform. This leaves just one pilar for the existence: guarantees. Do you ever wonder if someone in the government is thinking in a machiavellian way how to slowly dismantle the entities by stripping them off of their essence?
I do not know how the government can absorb the guarantee business? Forcefully, maybe?