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In relative magnitude, sure. General Motors and Chrysler during the recovery years following bailout. I'd bet most any of the airline survivors would fare similarly, especially AAL after absorbing the US Air red blanket of loss carry-forwards.
Not if you look at the latest Fannie Mae stress test analysis.
Could be that: "All is well." Could also be that: "All is not so well."
Actuarial discipline is that you rely heavier on the "not so well" outcome as the basis for projected costs hen the cheey, rosy vision the optimists bring up. To wit, I had a great friend in college who was a rabid NY Yankees fan. He was notorious for projections like "Hey, the Yanks just scored 6 runs in the top of first inning. At their present pace, they will win this game 54 to nothing!"
JMHO.
I think you can rest assured that every attorney in every active case pending is aware of the 9th Circuit Court of Appeals ruling. The reason it has created very little enthusiasm is that in practical application, plaintiff's might have the right and distinct privilege to sue the entities in which they own equity for damages that would only serve to deplete the company's equity further were they awarded damages. Those claims would not be assessed to Uncle's deep pockets.
Fannie directors have director's insurance, so they don't care.
Ho hum. Next?
JMHO.
That glass is a lot more than half full of something.
1. Treasury was informed that there was substantial value. But UST never implemented this plan, so seizing value obviously was not their goal.
2. DTA reversal and loan loss reserves were well known facts. No, they were well known possibilities, not guarantees. Much of the economic data suggested slippage into a double dip recession. Please refer to some of the extensive work by Professor Anthony Sanders on this subject. Peter Wallison has additional published content of relevance.
JMHO.
Could and probably will be just "Keepsies" and some change going forward.
AIG got no money back including their over-payment of bailout funds, no damages and no claw back on warrants.
JMHO.
Mulvaney and other proposals would have the same negative affect on both common and preferred shareholders. Several other recent proposals involve steering all the equity into what, for all practical intents and purposes, might best be described as an entitlement program for minority and low income families. Talking all these programs up on a regular and continuing basis only helps create an environment where media and social-engineering focused non-profits may latch onto one as the ticket to their agendas that do NOT include anything for stockholders.
I CRINGE every time one of these gets featured in some article or post here, that someone precisely like a Gretchen Morgenson will seize on the concept and burn it into the brains of The Beltway in some op-ed piece or magazine feature as some ticket to re-election. That would absolutely, positively put an end to any shareholder's dreams and rationale for investing in any part of either GSE.
The only intent shown in the Black Stone proposal is their own. Since the concept was never implemented (or even seriously entertained, as far as I know), it is irrelevant to any actions taken by government. Why pro-plaintiff guys like Bradford or even obi keep legitimizing it by continued reference makes me wonder what their true intent is for Fannie Mae. Is it to assist shareholders in recovering value, or is it for other reasons like notoriety or approval from FnF investors who are so desperate for a positive outcome that may seem to be slipping away that "anything" sounds better than no-news/dead-money? I don't claim to know the answer, I can only observe huge reaction to this week's bogus rumors and the paroxysms of reaction running the gamut from excitement to questions of validity to expressions of anger to laments of having been misled and disappointed when the whole enchilada was exposed as a hoax.
Why would anyone thrust the Black Stone/Skadden presentation to the forefront and talk it up when the expressed outcomes are so negative for all shareholders? Why?
JMHO.
The simple answer is that my investment dreams are a whole lot more conservative than most. Read my exchanges with brandemarcus over on the FNMAS board if you want detail.
I have said all along that I expect Amendment 3 to be pared back or repealed by the court, or replaced with a new Amendment 4 by government of their own volition. As earnings have declined on a comp, quarter-on-quarter basis, a return to arrangements prior to it (the 10% SPD era) could force the same receivership outcome and could be unchallengable under HERA's judicial review limitations because the law requires such specific action to liquidate.
JMHO.
There is already one docketed incident in Judge Sweeney's court concerning release of protected information. It is not helpful to risk another one, with all the subsequent motions and counter motions required to dispose of the earlier matter.
The documents in question have been freed of court protection. However, they are clearly identified as "confidential" and are the property of the parties involved. One of the parties, Skadden, Arps, is among the world's largest law firms. These are not toes to be trodden on.
The crux of the content is a restructuring proposal that will potentially bust the dreams of all existing common and junior preferred shareholders. See starting page 39 with special attention paid to the column to the far right side on page 40.
From the plaintiffs perspective, dragging this material into the dialog carries the weight of both good and bad news along for the ride. The "good"news is that it confirms a sentiment within government that "winding down" the GSEs was the prevailing lead strategy for reforming the GSEs. The bad news is that it does not confirm that "winding down" was the strategy of choice embraced by UST or FHFA, just many in the government sector. AND... the presentation corroborates the defendant's position that no privatization of Fannie Mae and Freddie Mac has occurred in any comprehensive way. No plan like this concept has ever been implemented. Period.
When I see Skadden, Arps leading a reorganization effort, as either a stock or bondholder, I expect to see a juggernaut steam-rolling over the lower levels of the financial stakeholder food chain while the big boys step to the front of the buffet line. Been through this many times. One of their fortes is restructuring without declaring bankruptcy. In such matters, only a shareholder vote to approve is required. Guess who has warrants for 79.9% of voting shares?
But, hey, just keep promoting this proposal. Maybe Lew and Watt can be convinced to implement this plan that likely leaves you with nothing but a rights offer to buy a pitiful tad of NEWCO (as they call it) while your existing equity gets cancelled or massively diluted.
JMHO.
Thanks for a predictable answer.
As to your question... ya just never know, do ya?
LOL.
Cheers!
JMHO.
A conspiracy serving aligned "Fanniegate" plaintiff causes in multiple courts of law, being paid for by separate litigants conjoined for some back-scratching end game benefit, raises many interesting consequences for future action. Of course, I am not claiming that actually happened...
JMHO.
Thanks for confirming that this confidential information was put in the public forum by Investors Unite, led by Timothy Pagliara. That is the content in the first link you provided. This is most helpful.
Maybe you have some additional information on the relationship between Glen Bradford, Timothy Pagliara and Bruce Berkowitz?
I would also be interested in your views on the propriety of various legal teams ganging up on a defendant in multiple suits where back-channel sharing of strategy and info is done on an unannounced, collaborative basis.
JMHO.
Follow up...I just found this document set in a NY Times report. It is okay for distribution. Just keeping things honest with a mea culpa for over-reaction.
JMHO.
SoFOR, I would be very interested to know where Glen Bradford posted this confidential Blackstone presentation. Do you recall where or when you acquired this confidential United States Treasury document set?
I just went back through all the documents released by the court, to date, and this is NOT one of them that I can note. The recap site for these, if anyone is interested, is a project of Investor's Unite and has its own website under fanniefreddiesecrets.org that is interestingly part of the link as you retrieved and posted it, yesterday. NO SUCH DOCUMENT SHOWS COURT APPROVAL FOR RELEASE on even that website that I can see.
I would urge you NOT to copy, distribute or post a link to this report again unless you are certain it is legal to do so. You might also want to think about requesting that I-Hub deletes your message.
I am not trying to add some drama to the board, but I think someone could get in a lot of trouble for spreading this particular gem if it was under protective order. Better safe than sorry on this.
JMHO.
Sorry, but your impressions on this are simply not borne out by the facts docketed on the court record. No issue before the court within the government's motion to dismiss on December 13, 2013 required any discovery delving deep inth government vaults of secrecy to address. Government made 3 claims justifying their motion to dismiss.
1. The court lacked jurisdiction to hear the case. This is 100% procedural.
2. The plaintiff shareholders lacked standing to bring the case before the court. This is 100% procedural.
3. The plaintiffs failed to state a viable takings claim. This is a 100% rule of law question requiring whether plaintiffs did or did not suffer a taking under prevailing rules.
There is no discovery necessary to address these government reasons for the motion to dismiss.
http://gselinks.com/Court_Filings/Fairholme/13-465-0020.pdf
You can just skim the outline summary to see that I am right on this. The whole cycle of dig, dig and dig more is a wild goose chase that leaves the barn door open while all the $$$ has escaped shareholders for nearly 3 years... the years when the GSEs returned to positive income that could have gone to shareholders and, instead, got swept to Treasury.
Sweeney delays are a self-inflicted wound, courtesy of Berko's legal team.
JMHO.
FNMAS has prescribed redemption periods with very narrow windows where preferred stock can be called for redemption. The next one is in December, 2018... then no opportunity until December, 2021. A recapped GSE will call bonds that are accumulative, when ever pfd's are recommenced. Since FNMAS is non-cumulative, they will not be among the first tranches called for redemption. However,your higher par will, of course, rise to a higher S/P value or liquidation preference value than FNMAS, depending on what cost at which they are purchased.
I would be totally satisfied with a $22 "consolation prize" on $3 shares held for a few years, only. If commons fare better, yet, more power to them. It is not a contest for me, just a balancing of risk vs. reward for an investor at my age with my somewhat conservative tolerance for risk.
JMHO.
LOL. Great post. My guess... and that's all it is... is that all the pending suits that seek remedy name the Federal government as the defendant. This means any eventual settlement approved by any court in any jurisdiction would not have any concerns about defendant's inability to pay or become a flight risk.
No court can force an insolvent business to keep its doors open, anyway, while the courts slog along towards some eventual ruling which could very well be a dismissal.
JMHO.
Sorry you disliked my post about Elizabeth Warren... your right to do so. I was only responding to an earlier post from mike_usa where he asked me for my opinion on what was going on.
Many investors believe that big banks are the secret architects and potential beneficiaries of a winding up of the GSEs. There obviously has been tremendous discussion of privatizing Fannie & Freddie,so it is not far-fetched to conclude that Warren's comments that specifically dealt with this same economic "machine" as the cause of the 2008 crisis could move a market hungry for release and recapitalization news. Much of her commentary concerned the impropriety of no one seeking criminal prosecutions and jail time for huge misdeeds in the mortgage finance industry. This focus, layered on top of her earlier crusade to repeal Glass-Steagall to break up big bank enterprises, is actually big news to those of us that follow events inside the beltway.
I am actually not a fan of Elizabeth Warren. But I do recognize her political animus in a role perhaps best described as being the anti-Corker.
However, I am sorry that my post somehow offended you. As always, it was just my humble opinion.
Yes, I recall Berkowitz discussing a settlement in one of his updates to investors. What I am talking about was the blogosphere/Twitterverse content that a settlement was about to be released in the short term that spiked the S/P up to the $3 area and drove many Fannie fans into a frenzy of celebration. Then the whole thing collapsed.
It is my further recollection that the timhoward717 site, not Glen Bradford, was the culprit, that time around.
I guess we will know by around today's market close if yesterday's rumors became today's actual news. Or not.
JMHO.
What am I wrong about? A big announcement supposedly to be released tomorrow at 11 AM that I say is total, absolute BS?
Am I wrong about all the other bogus announcements from blogs and the Twitterverse that earlier set the stock into trajectories because, e.g., a settlement with the government was about to be announced? Remember that one? How'd that work out for Fannie?
Am I wrong about Fannie investor frustration with the litigation circus that drags, drags, drags on and NEVER sees any positive outcome except for those cashing checks for enormous billable hours? I can certainly state that I am one Fannie investor that is totally pissed off at the incompetency driving the legal bus in all these courtrooms. But I am not the fund manager footing the bills here, so I largely try to limit my criticism to suggestions for alternative approaches to actually win something more than further DELAYS for everyone.
Help me out with specifics, here, on why I'm wrong in my earlier post.
JMHO.
I should have said one additional thing in my earlier post. When conservatorship ends, so does Amendment 3. There are no more draws from Treasury and no more payments to Treasury. All that remains is some final accounting on Senior Preferred preference... paid, unpaid, over-paid... and that is inevitably steered by the court system in one way, shape or form yet to be determined.
This afternoon's spike on Fannie commons and preferreds has nothing to do with tweets from Glen Bradford. Senator Elizabeth Warren delivered a passionate repartee to reporters about taking on the DOJ and FBI for failure to prosecute the bank and Wall Street types she labels as culpable for the 2008 economic crisis. It was largely a political overture, in my mind, explaining why the persecution of Hilary Clinton over e-mails is so unfair and just politically driven. But it also sounded like it could signal some initiative to punish TBTF banks and related institutions that could represent a softer stance on Fannie and Freddie.
The elevation in S/P's was consistent with the timeline on her remarks. I don't think any Tweets or blog posts had anything to do with the rise. We will know for sure tomorrow based on further price action and whether any actual announcement is really forthcoming. I really doubt it. The vast majority of these "bombshell rumors" turn out to be pure crap. Sadly, there has been so little progress on anything concrete that even silly rumors on court decisions become major topics of conversation and scads of messages back-and-forth. People are just getting desperate for some exit from the gridlock in all these courtrooms. This has dragged on WAY too long. Enough blame to go around on that one to condemn just about everybody involved... government obstruction, legal blunders by plaintiffs, narrow thinking from the judiciary, intractable polarity among stakeholders trying to grab the cash before someone else gets it...
JMHO.
So... you think that Berkowitz, Perry, Pagliara and poor Glen Bradford whom all are focused on preferred stock are morons that will get nothing, but the common shareholders are going to get some immediate payday in a S/P of $20 or more? How do the guys doing all the lawyer funding and trench warfare ever see a payday? Under most release strategies should Perry or Sweeney decisions favor litigants, all I keep hearing is that all money goes for recap and preferred shares get screwed.
I think that scenario is total horsecrap, but please help me understand why any of the key players would remain active Fannie pfd proponents if the share price will be mired in the near worthless purgatory of a recap that could span 5 years more before jpd's get restored.
Once a conservatorship is ended, the FHFA ceases to exist and, with it goes the judicial handcuffs on litigation. One might also argue that under Lamberth, unless it is reversed, all claims rejected earlier as not fully "ripe"become so.
JMHO.
In such case, a reorganization would likely replace a liquidation under receivership.This is always the preferred judicial outcome. Bankruptcy judges for the Eastern Division are silo'd in Wilmington, Delaware. It is not coincidental that Delaware is one of the few chancery court states where justices are raised under a keen appreciation of Common Law principles (similar to England). It is almost always the goal of the court to reorganize vs. wind up an estate in receivership.
Frequently in such scenarios, old preferred equity becomes new common equity and old common equity becomes Insinkerator refuse to get flushed down the drain. Look at the Blackstone/Skadden material posted earlier today. Just don't post the actual documents.themselves, unless you are certain they are no longer under court protection.
JMHO.
No need to interfere. Under HERA, an insolvency triggers and end to conservatorship, and end to FHFA in one or both GSEs and puts an end to prohibition of judicial review. This is clear in Lamberth's ruling on "ripeness". It also very clear in the text of HERA.
https://www.govtrack.us/congress/bills/110/hr3221/text
As to your prior post, Fannie has no such debt instruments or debentures outstanding.
JMHO.
No need to interfere. Under HERA, an insolvency triggers and end to conservatorship, and end to FHFA in one or both GSEs and puts an end to prohibition of judicial review. This is clear in Lamberh's ruling on "ripeness". It also very clear in the text of HERA.
https://www.govtrack.us/congress/bills/110/hr3221/text
JMHO.
I do not think the next verdict will be from the DC Court of Appeals. Perry, to me, looks to me like a water polo match where the ball somehow went over the fence and everybody is just relentlessly shuffling their feet and treading water while no game goes on.
Any favorable decision elsewhere will propel both pfd and common shares. I'd have to see the content of the decision to put your proposed strategy to the mental test when revealed.
Yes there is an asset supporting the mortgage loan that Fannie Mae purchases from a bank and uses as the basis for issuing MBS. If you buy MBS bonds, however, except in very rare cases, bond owners do not have liquidation rights to the property used to collateralize the loan.
The argument isn't worth any careful consideration because no default on MBS is ever likely to occur as so much of it is held as sovereign debt that the government must in practicality pay out on if Fannie can't, simply because Treasury would be unable to sell other forms of sovereign debt after any whiff of default on GSE bonds. And, yes, I know all the rhetoric that no government guarantee is committed, but it is always assumed in case of a dire economic collapse of FnF.
As stated, earlier, under the doctrine of fairness, I presume that ANY bankruptcy judge will assign mortgage proceeds to be paid to MBS bondholders, leaving that group exposed only to losses sustained for loan defaults which would be unlikely to ever even reach 5%. That is still a big number, overall, I grant you. But defaults dwindle as loans mature except for the adjustables that destabilize if interest rates rise suddenly, as they did in the post-Nixon era. Not likely, today,as much of the globe ponders negative rates.
JMHO.
I have posted this many times on this board and on FNMAS. You being a new poster here never saw those posts so please understand my reply is going to be very brief to avoid boring everyone else here who has already heard the story. I am not avoiding your question which is a fair one.
I am retired. I invest for a living and have done so for many years. I primarily hold high yield stocks, mReits, ETFs and mutuals, with a sprinkling of tech and growth stocks added for interest and potential bigger gains or as M&A targets like Twitter and Square. I am not a highly active trader like many here are, nor do I short anything. I do not trade on margin and I never borrow money to invest. I invest against what might be called a "passive/aggressive" objective of taking more risk than normally suits a retiree, but try to avoid extreme risk in distressed plays. I have a LOT of history in distressed and bankrupt companies that I have successfully traded for over a decade. That is why I am here in Fannieland. I often investigate either preferred or bond strategies in these opportunities as an alternative to the absolute risks of owning common stock.
I chose a preferred position sensing a likelihood for receivership. I chose FNMAS within the family of Fannie pfd's because of its high coupon, relative activity and liquidity and because of 3 year redemption dates that make the equity of value if liquidation does not occur (such as if the Perry Appeal eventually succeeds). It is similar to taking a hedged position in Fannie Mae.
I have assessed 3 potential outcomes in the end game.
1. I can lose 100% and move on.
2. I can get liquidation preference on FNMAS in a range from $16 to $25 with an investment that will require 3-4 years to net a 6X to 8X return.
3. I get restored dividends that at face would net eventual $2.06/share JPD and a near $25 S/P. Once/if release occurs, it should take about 5 years for a full 8.25% JPD to top out, so let's just assume it restores at 1/2 of coupon and just goes up, year after year, from then on. That would be a $1.03 divvy on what today is a $3 stock. That's a 30%+ yield for as long as it lasts. There is not another redemption period for FNMAS until December, 2018 and then none until 2021 so a solid payout is likely, though not assured.
Commons will get a much larger, incremental reward payday in an R&R scenario... Ackman says $20, other pundits predicting $100's/share which I view as way out of the reality zone. But they also carry the much higher risk profile of shares with no recovery likely under liquidation.
So that's why I'm here and why I own preferreds. Someone with a higher risk tolerance can benefit handsomely by owning common shares under certain outcomes being sought in courtrooms across America.
Believe it or not, this is the brief version. Apologies to those that have already seen this before.
JMHO.
No, Joseph, I disagree totally. Read HERA. It specifically has an extensive section regarding undercapitalized entities that requires an end to conservatorship and declaration of receivership in a specific period of insolvency defined by inability to meet its payment and regulated obligations. By recollection this period was 3 consecutive months.
HERA requires Fannie Mae and Freddie Mac to make payment to various housing funds, reserves and backstops in addition to payments due MBS bondholders. An insolvency would result if any of these obligations go unfulfilled.
No, many people believe this but it is not the law in a receivership. The hierarchy is straightforward in any court-administered wind up.
1. DIP Financing. This is whatever liquidity needs must be satisfied in order to either re-org or wind up the companies affairs. First priority.
2. Secured financing and debt. This is asset backed and typically includes plant/property/inventory/intellectual property and so forth. Second priority.
3. Secured creditors. These are specific, asset backed agreements pledging rights in a default. Typically these are things like leased vehicles that require return of the vehicle if the lease contract goes unfulfilled.
4. Preferred shareholders. Shares with liquidation preference are entitled to a return up to par value from funds available. This in a FnF wind up would largely come from liquidation of most reserves and from income generated during the wind up period which would likely takeup to two years.
5. Unsecured creditors. Rarely get anything. Maybe some rights offering if a re-org will start a new venture from the ashes.
6. Common shareholders. Last priority. Rarely get anything but a letter from their broker stating their shares have been cancelled.
MBS does NOT rank above preferred shareholder interests because the bonds do not carry a liquidation preference. I expect that the judge assigned to any liquidation proceeding would rule that the long term mortgage assets should be paid out to MBS bondholders under the doctrine of fairness which always prevails in the bankruptcy court.
It might help to think of this from the context that every debtor of FnF has a contractual expectation of getting paid. So, yes, MBS is a contract. It just has no liquidation preference. This is why so many pending suits seeks restoration of preference that they claim was part of the government taking.
Hope this helps clarify things for you.
JMHO.
I think you may well see your $1.50 price, but I do not think it will be so early as Friday. FNMAS and FNMA are cycling down, pretty much in tandem. I expect to see a $3 s/p on FNMAS, soon, also.
News from the courts will be required to enact meaningful change. I suspect that will be on or around October 1st from the DC Court of Appeals ruling on Perry.
The debt will NOT trade lower because there is almost no secured debt on the books. Fannie Mae is holding mortgage assets with as much as 29+ years of P & I payments due it, with a default rate at a bit above 1%. That means debt lenders with secured positions are golden. Next come the preferred shareholders in liquidation preference, both senior and junior preferreds.
THEN come the MBS holders whose paper carries a guarantee from Fannie or Freddie. They rank below junior preferred shareholders because their "expectations" for payment are not secured by equity, just the assurances of the GSEs.
We can all argue until the cows come home about the rationale behind this hierarchy of "who comes first"... but the law says pfd shares get paid before MBS bond holders. And debt holders get paid before preferred shareholders. That's the law. And why I own pfd shares... not wanting a goose-egg in my investment account ledger.
NO debt will get dinged here. And very little pfd equity will get dinged, either.
JMHO.
HERA very specifically requires a receivership under under-capitalization criteria. One condition, therein, is that the conservatorship ends with receivership. The next step would be a court appointed receiver (I believe "trustee" may be the correct term) to assume the management of the winding up process. My strong guess is that this triggering event will come near the end of 2017 when there is push back from Congress, bristling at the idea of further bailouts for the GSEs. I find it very unlikely that such resistance will lead to some Congressional Epiphany and get a reform bill for housing finance passed and signed into law. The more likely outcome will be a simple addendum to some funding bill that simply bars Treasury from any further advances to either GSE, leading inevitably to a mandatory receivership under the provisions of HERA.
That's when the fun starts. Bankruptcy law and bankruptcy investments are my area to harvest. A Federal bankruptcy judge is NOT going to get immersed in the debate of reasons for bankruptcy, vagaries of senior vs. junior preferred equity liquidation preferences or, frankly, any of the legal "mumbo jumbo" that flavors the current, over-flowing pot of litigation gumbo that has become Fanniegate, et al. He will make a decision, considering the interests of all stakeholders. Their attorneys can argue with him/her if they choose, but in the end the judge makes a final ruling and that is it. Bankruptcy settlements governed by a court order are rarely appealed, and even more rarely modified.
When Jacobs, Hindes was initially filed I said that any success there would likely push the government to liquidate both GSEs. Some viewed this as simple retaliation and dissed the idea, entirely. But it, rather, reflected the political reality that the Grover Norquist mentality of "nevermore" on bailouts and debt extension led by Gop'ers like the House Speaker... you know, the one that looks like Eddie Munster... will NEVER give Fannie or Freddie any more money so as to remain solvent. They don't care about housing. They even threw Social Security C-O-L-A increases and military spending under the bus via the stupid, stupider, stupidest "Sequester" insanity. They won't hesitate to throw affordable housing or the 30 year mortgage under the next bus in the fleet. Just you watch.
I may not like this outcome, but I only get a vote in how I chose to include or ignore it inmy investment outlook.
Happy to have my junior preferred position here based on my investment thesis.
JMHO.
Legal stunners from yesterday's dockets!
1. Looks like Saxton may be the next domino to fall.
http://gselinks.com/Court_Filings/Saxton/15-00047-0091.pdf
2. Pretty scathing rebuke of claims made by Pagliara in the Deloitte court proceeding. Government seeks leave to file an unusual reponse due to gross misrepresentations of fact in Pagliara's earlier filing.
http://gselinks.com/Court_Filings/Deloitte/16-cv-21221-0039.pdf
JMHO.
As a follow up, I ran across brandemarcus on another message board and asked him to repost his analysis on Fannie Mae breakup value based on liquidation preference. I don't know if he saved his data, but be on the look out for a post from him, here. His analysis was really thorough and well researched... something you might expect from a well-heeled accountant like him. I hope he will add his data to the mix for discussion.
I think the overall discussion is important because receivership is very much a possibility with both GSEs under several scenarios. Each month that goes by with no reform measure passed, with no judicial decision changing anything significant, with income dwindling in each subsequent Q both both Twins is another month closer to December/2017 when the $$$ runs out.
JMHO.
Yes. I almost wish I had not taken so deep a position in Apple in July so I could add, here, but I did get those shares at $96 (closed @ $108, yesterday, with a nice divvy) so I'll avoid the self pity stuff on FNMAS.
The point that often gets lost in the pudding here, so to speak, is that the starting point for the earliest Fanniegate suits was investor pushback from suspended dividends on preferred equities issued by both GSEs to raise capital in a tightening liquidity market. Most all the release and recap iterations so far proposed would likely make this a future necessity, especially if Glass-Steagall gets repealed and banks get hungry for more mortgage finance biz to offset other, divested interests and freeze FnF out of easy financing access. I think the GSEs days using the Fed as a piggy bank are going away very shortly. This could and likely would make additional equity financing much more attractive... something that can only happen if pfd's get restored and common divvies re-commence upon release, assuming an exit from conservatorship ever actually occurs.
Hey, could you repost your figures for liquidation value from the FNMA board a month or so ago. We had a long thread on this yesterday over the topic, and I commented that your numbers were well thought through on the subject.
Good luck navigating this treacherous market, these days.
Yes. That is 100% correct under normal circumstances.
To be fair... here we have the added and highly unusual complication of SENIOR PREFERRED SHARES being given to government under a law that appears to grant a free pass to government for almost anything. So an answer to your question really depends on whether any court has the gonads to rule that such largesse is excess or legal.
That being said as a cautionary warning, check back in time for an excellent analysis by brandemarcus awhile back where he estimated the liquidation value of the Twins. By recollection, his proforma was that after senior preferred liquidation preference was "settled", around $60 B would remain for junior preferred shareholders. In a pure liquidation, this would put settlement at a near-par level... $25 in the case of the FNMAS I own.
Maybe he stays tuned in and would care to comment from the accountant's perspective that I miss, now, amidst the lawyer-wannabe content? Brandy, you still out there?
My personal investment thesis pegs recovery in liquidation at somewhere above $16 per $25 par share value. Recovery in 2019. If release & recap should magically appear, great. Then the 8.25% coupon after full recovery will drive S/P well above $25, with divvies recommenced at no less than 50% payout, pretty much from the get go of release. I'll put that in perspective. Buy a preferred share for around $3. Start restored divvies with a half off discount on an 8.25% coupon = $2.06 X .5 = $1.03. That's a 30%+ return on a $3/share investment.
The vigorish is why so many hitters took positions in preferreds.
Me too.
This is a yield driven market in a macro sense. Coming here from the mReit sector, this looks like a hedged-risk bet on an above average return for people patient for a two year payback. And if the courts come through with a coup, the reward will only come sooner.
JMHO
That is a really GREAT analysis.
Great balance.
Thanks.
There is no meaningful support for FNMAS until $2.98 so, yes, I expect it to breach $3.00 without a favorable Perry Appeal ruling. There is a longstanding 2/1 equivalency between FNMAS and FNMA, so that would put common shares at under $1.50, right alongside my "hit" on the pfd side.
The point I keep trying to make is that preferred shares share the same fate as common share prices, other than smoothing out the volatility for risk that reposes in commons. The preferreds just have a safety net in liquidation preference. Traders (not investors) dump preferreds because they want a quick gain, not a wait until likely 2019 for a liquidation payout.
Rare for me to say this, but the dump over the last 2 days is not the hedgie players who at least have an investment goal driving FnF share ownership. It is the traders moving on to the next fast gainer, leaving a void for us to try and explain. Not a complaint on my part, just observations that in volatile times having a fund like Pershing owning 100M shares may be a very stabilizing influence.
I can't believe I just said something complimentary about hedge funds!
JMHO.