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Houlihan Lokey are professionals you pay for their service -- if you think their fee is big then wait till you see what they pay the book runners for the offering... But you cannot do without the services of these folks, so you pay up - same as your realtor and attorney
As to the HTZ scenario -- in BK court the bond-holders routinely undervalue the assets to cut out classes and push up their take. I am encouraged by the Judge allowing the offering -- this at least gives a chance to common. If business picks up, then common have chance
I would not buy HTZ, but I admire this BK judge for going this route
A still more cynical take -- there is a pressure campaign right now to decrease the prices of FnF so somebody can buy in
But the self-serving, narcissistic clown hypothesis is plausible too -- Gas Bag shoots himself in the foot most of the time he talks about FnF since he gives all kinds of tells that he does not really grasp the details at all
Gas bag is a clown, where is the evidence Biden opposes RnR? No one has produced anything so far...
Shadow, as the Bolton book apparently confirms, for Trump it is ALL about re-election... hence RnR got shelved cos could only hurt re-election
Whether they follow through after an electoral defeat is interesting, Mnuchin seems to want it and they are now committed in various plans
But we shall see, this President is "mercurial" to say the least...
BTW When RoLG published his peice in Feb 2020, FNMAS was at $12.50 rather than its present $8.5... so FnF securities have upside to the predictions in the article
Rule of Law guy's FULL article on Seila Law from Feb 2020 on Seeking Alpha (now behind a paywall), to complement Navy's great posts today:
Summary
A litigation settlement is a practical necessity in order for FNMA and FMCC to execute their recapitalization and release from conservatorship.
The Collins 5th Circuit en banc decision, that declared FHFA unconstitutionally structured, but most importantly for Fannie and Freddie shareholders, denied retrospective relief to plaintiffs, is on hold at SCOTUS.
So one may think settlement among Treasury/FHFA and Fannie/Freddie shareholders will similarly be on hold until after SCOTUS grants certiorari in Collins and hears the case (decision in 2021).
This is wrong. SCOTUS's decision in Seila (oral argument 3/3/20, decision late summer 2020) will provide direct read-through to Collins, and represent a huge win for Fannie and Freddie shareholders.
In effect, Seila is Collins in disguise at SCOTUS, and Treasury/FHFA likely will be facing a Seila decision that provides Collins everything needed for GSE litigating shareholders to claim a $100 billion plus victory.
Thesis
I anticipate that SCOTUS will decide in Seila that the CFPB is unconstitutionally structured and, importantly for Fannie and Freddie shareholders, SCOTUS will void the Civil Investigation Demand (CID) issued by CFPB against Seila (retrospective relief). Seila will be argued before SCOTUS on March 3, 2020, and SCOTUS’s decision in Seila can be expected sometime in the summer of 2020.
FHFA’s structure is in all material respects identical to the CFPB structure (single agency director removable by POTUS only for cause). If as I expect SCOTUS finds CFPB unconstitutionally structured in Seila, Seila will be non-distinguishable SCOTUS authority for concluding that FHFA is unconstitutionally structured.
The big issue for Fannie and Freddie shareholders is whether retrospective relief will be granted in Seila, or will SCOTUS only provide prospective relief (void as unconstitutional the single director removable only for cause provision). In the 5th Circuit en banc Collins ruling, the 5th Circuit (properly in my view) held that FHFA was unconstitutionally structured, but declined (improperly in my view) by a 9-7 vote to grant Collins plaintiffs the retrospective relief they sought, which was to invalidate the Net Worth Sweep (NWS). Invalidating the NWS will result in a $100 billion plus litigation victory for Fannie and Freddie shareholders, and should result in substantial and immediate capital appreciation for GSE junior preferred shareholders.
This retrospective relief would have been proper in my view because there is substantial SCOTUS authority for the proposition that final agency action by an unconstitutionally structured agency must be voided. Under this SCOTUS authority, the NWS must be vacated because it was an official action taken by the FHFA Acting Director at a time in which the FHFA was unconstitutionally structured. The 5th Circuit provided only prospective relief, severing the removal only for cause provision from the other provisions of the statute, rendering the FHFA director removable by POTUS at will.
The concurring opinion by two 5th Circuit en banc Collins judges, the swing votes in the 9-7 decision to deny retrospective relief, made clear that they thought they were obligated by SCOTUS precedent (Free Enterprise case) to provide only prospective relief as a remedy for a separation of powers constitutional claim. As I will discuss in the Analysis section below, this is a misreading of the Free Enterprise case and indicates total ignorance of the Bowsher case, in which SCOTUS granted plaintiffs retrospective relief for a constitutional separation of powers claim.
As discussed in the Analysis below, I expect SCOTUS to grant retrospective relief in Seila. If so, then sometime during the late summer/fall of 2020 and immediately after the Seila decision, Collins plaintiffs should be able to go directly to the 5th Circuit and seek an order invalidating the NWS. Collins plaintiffs will be able to do so if, as I expect, SCOTUS issues a “GVR” with respect to the Collins plaintiffs’ petition for certiorari on their constitutional remedy claim (see Analysis for further discussion).
Treasury/FHFA will face an ultimate reckoning on the validity of the NWS once SCOTUS releases its Seila opinion and, as I expect, grants a GVR with respect to the Collins case. It is around this time, late summer/fall 2020, that I would expect Treasury/FHFA to feel compelled to engage in serious settlement discussions with litigating Fannie and Freddie shareholders. It is important to realize that because of the read-through from Seila, (I) this late summer/fall 2020 time frame is many months in advance of the time if GSE shareholders had to wait for SCOTUS to take up and decide Collins directly, and (II) Collins plaintiffs will have an extraordinarily powerful negotiating position, necessitating little discount in settlement from what would be obtainable through litigation to final outcome. I don’t believe the market realizes either of these points.
Based on this thesis, I believe GSE junior preferred stock is currently undervalued. I have no view of the valuation of GSE common stock.
Analysis
I have set forth above my current Fannie and Freddie investment thesis. I believe that the prospects for a favorable GSE litigation settlement are sooner and better than is implied by the current trading price of GSE junior preferred stock.
Readers who don’t want to get into some of the legal nitty gritty that supports this thesis can stop reading now. For a more complete assessment of the thesis, I set forth my analysis below. This includes my best guess as to the outcome of the Seila case before SCOTUS, which of course is uncertain.
Fannie and Freddie shareholders are aware that the 5th Circuit en banc held in Collins that (I) the conservator had a statutory obligation to conserve and preserve assets, and that the Collins plaintiffs had made a plausible allegation in their amended complaint that the NWS violated this conservator duty (APA Claim), and (II) FHFA was unconstitutionally structured insofar as the FHFA director could be removed by POTUS only with cause, but the Court denied Collins plaintiffs the retrospective remedy of vacating the NWS (Constitutional Remedy Claim). Instead the Court severed the for cause removal provision from the statute so that it would have no effect on a prospective basis.
As to the APA Claim in (I) above, while the Collins plaintiffs needed only to show, and the Collins 5th Circuit majority held that they did show, a “plausible allegation” that the NWS violated the conservator’s duty in order to deny the government’s motion to dismiss, one should understand that the Collins plaintiffs’ APA Claim is much stronger than a plausible allegation. Based upon the legal analysis set forth by Judge Willett in the majority opinion, and the fact discovery available to the Collins plaintiffs from other cases such as Fairholme in the Court of Federal Claims, it is highly likely that the Collins plaintiffs will prevail in the District Court for the Southern District of Texas (SDT) on the APA Claim. Furthermore, while the government’s certiorari petition of the APA Claim is on hold at SCOTUS (and one might think that if SCOTUS believed that the APA Claim was not correctly decided, it would not have placed the government's APA Claim certiorari petition on hold), the 5th Circuit issued its mandate to the SDT before the government’s cert petition had been filed with SCOTUS (a timely petition would have stayed the mandate). So, Collins plaintiffs are able to proceed with trial on the APA Claim at the SDT while the APA Claim cert petition is on hold at SCOTUS. As of the time of this writing, Collins plaintiffs have yet to file papers restarting litigation of the APA Claim in SDT.
But my investment thesis focuses on the Constitutional Remedy Claim rather than the APA Claim.
Before considering the Constitutional Remedy Claim in (II) above, it must be remembered that the 5th Circuit en banc found by a vote of 12-4 that the single director removable for cause statutory provision violated Article II of the US Constitution (that POTUS shall have the executive power to take care that the laws be faithfully executed). While this holding has not been appealed by FHFA to SCOTUS, it is implicated in the Collins plaintiffs’ petition for certiorari on the Constitutional Remedy Claim, which is also on hold at SCOTUS with the APA Claim. The underlying claim that the FHFA is unconstitutionally structured is almost identical to the Seila claim that the CFPB is unconstitutionally structured. If SCOTUS holds in Seila that the CFPB is unconstitutionally structured, SCOTUS will likely affirm the 5th Circuit en banc Collins holding that FHFA is unconstitutionally structured.
I believe it is highly likely that SCOTUS will find the CFPB to be unconstitutionally structured in Seila. For a preview of how that majority opinion may be written, one may read then-Judge Kavanaugh’s bravura PHH DC Circuit Court of Appeals opinion holding the CFPB to be unconstitutionally structured in 2017 (overturned by subsequent DC Circuit of Appeals en banc decision, which was not further appealed to SCOTUS).
As to the Constitutional Remedy Claim in (II) above, the 5th Circuit found by a vote of 9-7 that Collins plaintiffs were not entitled to retrospective relief for the constitutional violation posed by FHFA’s single director removable only for cause structure. The only relief afforded was to declare the director removal statutory provision void and severed from the rest of the statute, which would otherwise continue in full force and effect. The denial of retrospective relief is at odds with SCOTUS precedent, and the prospective remedy (requiring a severance analysis) is a highly questionable judicial action which I believe SCOTUS will disavow in Seila, at the invitation of Seila counsel.
Seila’s brief at pps 35-48 exhorts SCOTUS to simply provide the Seila plaintiff the limited relief requested, to vacate the CID entered against the plaintiff. Seila counsel argues that it is unnecessary for SCOTUS to go further and entertain whether the entire statute must be declared unconstitutional, or whether the director removal for cause provision may be severed and the rest of the statute may continue in full force and effect. Selia is not asking SCOTUS to enjoin any future action by the CFPB. This is in contrast to the plaintiff in Free Enterprise, which sought to affirmatively and prospectively enjoin the PCAOB from carrying out any of the powers delegated to it by the statute in the future. As the Collins plaintiffs amicus brief in Seila points out, there was no retrospective relief that SCOTUS could have provided the Free Enterprise plaintiffs (Collins Amicus brief pps 9-10) based on the facts of the case.
Indeed, since the Seila brief sets forth good reasons to believe that Congress would not have created a CFPB with a director removable by POTUS at will, any SCOTUS inquiry into the severability of the director removal provision would likely render the entire statute unconstitutional…a place SCOTUS doesn’t want to go, which is further reason not to even engage in the determination as to whether any prospective relief should be available.
Collins plaintiffs’ amicus brief in Seila makes clear that the 5th Circuit en banc concurring opinion which resulted in the 9-7 vote denying Collins the retrospective relief of voiding the NWS was based upon a confused and erroneous reading of the Free Enterprise and Bowsher cases. There is no basis for SCOTUS to engage in a prospective relief analysis in place of a retrospective relief analysis, as the former does not replace the latter. Indeed, since a prospective relief analysis requires SCOTUS to engage in counterfactual guesswork as to Congressional intent which is not consistent with the Article III judicial power to decide cases and controversies, it is highly preferable for SCOTUS to only provide retrospective relief.
Another amicus brief of note in Seila, on behalf of three Senators, supports this view that only retrospective relief should be provided by SCOTUS, arguing that SCOTUS should “craft a remedy that is narrow enough to resolve the controversy between the parties in this case, and leave the broader remedial questions to Congress.”
If SCOTUS had granted certiorari to the Collins plaintiffs to argue the Constitutional Remedy Claim, Collins counsel would make essentially the same arguments that Seila counsel has already made to SCOTUS in its brief. Seila is teed up for Collins in such a way that a Seila victory will be a vicarious victory for Collins, and Seila will become the basis for SCOTUS to grant Collins a GVR with respect to its Constitutional Remedy Claim currently on hold at SCOTUS.
A GVR is a “grant, vacate and remand” by SCOTUS, in which SCOTUS would not itself decide the Collins Constitutional Remedy Claim currently on hold, but rather instruct the lower court (presumable the 5th Circuit) to review the Collins Constitutional Remedy Claim anew in light of its decision in Seila. SCOTUS could render this GVR immediately after its decision in Seila. Collins counsel discusses the GVR at approximately 4:20 of a recent Investors Unite conference call.
One fear that many district and circuit court judges have with respect to a holding that the CFPB is unconstitutionally structured and retrospective relief is available is that there will be an avalanche of follow-on copycat suits, and that some of the $5 billion in fines collected by the CFPB over its decade of operation and the $500 million sitting in the CFPB Civil Penalty Fund will have to be disgorged. You will likely hear the Solicitor General raise this as a possible consequence of retrospective relief in oral argument on March 3, 2020. But there should be no realistic fear of such a result. SCOTUS has always conditioned a successful constitutional challenge to agency action upon the plaintiff making a “timely challenge” to the particular agency action. Seila made such a timely constitutional challenge when it sought to enjoin the CID issued by the CFPB against it (as did Collins plaintiffs with respect to the NWS). Payors of these historical civil fines already collected by the CFPB (usually pursuant to stipulations and consent orders binding the payors) would not be able to satisfy this “timely constitutional challenge” condition. I expect SCOTUS to cabin the retrospective relief granted to Seila precisely to only those plaintiffs making timely constitutional challenges to agency action (as opposed to trying to recoup fines already paid without constitutional challenge). The fear of follow-on copycat suits is misplaced.
I believe that the GSE junior preferred stock is undervalued at current trading values because I don't believe the market appreciates that (I) a SCOTUS Seila decision will precipitate a negotiated settlement of GSE litigation, which I anticipate will occur during late summer/fall 2020, and (II) such settlement will be favorable for GSE shareholders and result in substantial capital appreciation for GSE junior preferred shareholders. Nonetheless, the GSE junior preferred remains a highly speculative investment and should be subject to careful portfolio allocation.
Disclosure: I am/we are long FNMAS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Because the legal process goes so slowly that newbies, and some of us oldies, may not know the details of the ongoing court cases -- and the very real positive aspects for shareholders
PLUS SCOTUS is now on deck to rule, June 15 to July 15, on Seila Law -- so Navy's post is dead on target with relevant info
So I really appreciated the posts by Navy today -- salient info given upcoming SCOTUS actions
Monk, I agree the market is going much lower, but I think those stair steps may each have a pretty vicious upward spike before the rip
I cannot deal with it, so I went to cash for a while till I get some sense of where we are again -- and parked some of that cash in FnF in case of a proper SCOTUS decision on CFPB being unconstitutional and voiding past actions that have been legally challenged (so SEILA law's challenge to CID and our plaintiffs challenge to NWS...)
Here is the summary from Rule of Law Guy's Seeking Alpha article in Feb. 2020:
Summary
A litigation settlement is a practical necessity in order for FNMA and FMCC to execute their recapitalization and release from conservatorship.
The Collins 5th Circuit en banc decision, that declared FHFA unconstitutionally structured, but most importantly for Fannie and Freddie shareholders, denied retrospective relief to plaintiffs, is on hold at SCOTUS.
So one may think settlement among Treasury/FHFA and Fannie/Freddie shareholders will similarly be on hold until after SCOTUS grants certiorari in Collins and hears the case (decision in 2021).
This is wrong. SCOTUS's decision in Seila (oral argument 3/3/20, decision late summer 2020) will provide direct read-through to Collins, and represent a huge win for Fannie and Freddie shareholders.
In effect, Seila is Collins in disguise at SCOTUS, and Treasury/FHFA likely will be facing a Seila decision that provides Collins everything needed for GSE litigating shareholders to claim a $100 billion plus victory.
LOL, I have never predicted common to $5 on a Friday or not
I am also all pref
Maybe take some fish oil tablets to help with your memory, since I think you have me confused with other posters
Sell-off coming in the PM, markets fading to red...
Look out, curious to see how hard this sell-off will be.
Nice summary...
If Trump loses, then the administration could care less about about upsetting congress
AND
Administration will care less about compromising the value of the warrants, since the Trump guys won't get to spend that money
I have no issues on my TD accounts FYI
Bloated AND STILL EXPANDING FHFA -- that is why I would like to see FHFA's funding severed from FnF income and appropriated by congress
Basically, Calabria's empire building at FHFA is funded by increased mortgage costs to ordinary Americans -- we do not need such bureaucratic "lice" feeding on the body of the nation
Skeptic, I would look to evidence, rather then the "fibers of your being", in making your decisions on FnF
Makes sense of your views -- if you are mystically intuiting from the "fibers of your being" then I don't think you are on safe ground
Just IMHO... given all that fiber I assume you are regular, so that is good
Except a Consumer Bureau will not be put off -- we WILL very likely get Consumer Bureau before July 15th
SO, systems are on deck...
Navy, thanks. It is absolutely staggering how long it takes to get results in the Federal court system -- nothing has resulted from this judgement since we then went down the SCOTUS rabbit hole
Hopefully, between June 15th and July 15th, SCOTUS pulls a rabbit from its hat...
That judgement could be SCOTUS going big with retroactive judgement which nullifies NWS and bottle rockets the share price
But even if SCOTUS goes small with judgement for removal at will, or some weasel move, then we still get Judge Atlas unchained to rule as directed by Collins en banc... and share price potentially bottle rockets
So I think we have a have key events coming between now and July 15th -- this is a nice place to invest since wider markets look toppy with potential for brutal retrace
GL to all longs here, death to the shorts...
Nats, not sure what the big deal about Calabria is. I don;t think he really matters, I think Mnuchin is the one driving the bus -- as long as he stays around then I think RnR goes forward.
A retroactive SCOTUS decisions could seal the RnR, since Treasury then has cover and really has to do something
A Trump loss also means Treasury has to act after election -- and I think Mnuchin does that.
BTW Mnuchin has been the most adept of the Trump cabinet -- (a) he has survived; (b) he has had successes without Trump culling him for being too popular and (c) he continues to advance the FnF process. Pretty impressive in the most anarchic administration in modern history.
At present, the polls are getting worse, and worse, for Trump. Plus Trump keeps trying his old schtick which does not work in the unsettled times. As long as CV 19, and economic prolems, stay around then people will want a unifier, rather then someone constantly tearing things up... So I think odds are for Trump loss and RnR in Novemeber...
But fingers crossed for SCOTUS decision, I bought a little more FMCC pref today since the window is June 15 to July 15. I don't think a SCOTUS decision for just removal at will will take pref down much, but a retroactive decision negating NWS obviously rocket ships the price... We will see soon I hope, plus I don;t want to invest in the market right now at these prices
Thanks Navy, the article says 2nd half of June or early July
Had not also realized some predicting that SCOTUS will rule on FnF case soon after CFPB ruling
Fingers crossed
LOL, Skeptic, too much... Come November an ambulance is possible that will take FnF to a hospital where they have life saving cardiac surgery
Now, you may be betting the ambulance, driven by Mnuchin (with Calabria in the back), does not arrive -- but you don't KNOW it won't
...so we wait...
Yeah, if the commons were disconnected from the markets, then that would make this a nice play -- somewhere to park cash...
But as you say this has yo-yo along with the markets
In contrast, the pref prices appear to have much less correlation to the markets, though I have not done an analysis of that
Let's hope SCOTUS throws us a bone... otherwise November is a long way off. Right now, each week feels like a month with all the action. Tiring, lol
"Where there is muck, there is brass" as they say in my old country
You have to get your hands dirty, but being able to distinguish pearls and turds is essential
Understanding a capital structure is one necessary way in sorting through muck in the stock market.. but whatever
Sell at $2 buy back at $1.9 or lower... not my trade but if it works?
LOL, if those are pearls the sewage guys are millionaires...
AMEN -- but apparently there are no warrants (!)
...and no more capital needs to be raised (!)
...and common-holders are entitled to tea and cake for the REST OF THEIR LIVES!!!
Only real danger is diabetes from all the sugar...
Lol, on (1) don't you really mean:
(1*) 1.16 billion shares oustanding with warrants for 8 billion more shares
(6) Presently undercapitalized, absent the result of legal cases and/or the beneficence of the Treasury
(7) Capital rule proposed requiring $100 billions plus of extra capital to be raised
That provides a more realistic, and factual take, -- and FACTS MATTER
Navy, yes, tomorrow may be a buying opportunity... tbh our situation looks alot like the 1929 era - massive volatility both ways...
EVERYONE, barbers, Uber drivers, etc all in the market, made a killing on the way up and putting more into the market at the highs -- when market goes down they wait and wait till the bottom, then sell...
Massive rips and dips... Really not a buy and hold market imho except selectively... Pretty much your strategy on FnF, buy the dips, sell the rips
I am only holding WFC, bought very low, and FnF... the rest is once again cash and lotto options
See how bad the sell-off is tomorrow before thinking about buying, I have my list I sold out of recently so I may start buying back in (things move double fast right now, so got to be very quick...crazy)
Under $2 this week, as I predicted, ...
Lady says could run into July, and that was the ACG window June 15 to July 15 for a decision...
Market now going into a correction it appears, so a positive decision might get a muted reaction if the markets are tanking
I hope we see soon
Futures massively red - bloody day ... GL
Wrong again -- HERA mandated FHFA as conservator I believe...
Dead right...
Conservator agreed to the NWS
The NWS was an amendment to the agreement between Treasury and the companies -- the conservator stands in the shoes of the companies (NOT the regulator) so the FHFA as conservator agreed to the NWS
What are you holla-ing for? $3 seems more like it on common
Or was it 60 cents? maybe I did not real carefully
:)
Only question is whether it is worth loading a little in case of a good SCOTUS result?
I don;t think pref goes down on a ruling with no import, but a positive ruling could give a 50% rise in pref imho
Maybe common gets to $3 or maybe $4...
Dax, many thanks for sharing, very useful...
UH OH -- THREE TRAINS DEPLOYED! Common dive coming...
CC how mean of you to use the three trains sp killer!
Senator Warner has become the Senator from TBTF Banks...
Warner sounded like he wanted info he could trade on -- once again, since we know how profitably Warner and his buddy Corner did last time betting AGAINST american homeowners
Warner also wanted to be told that Treasury will KEEP the senior pref, so I guess Warner is either ignorant of the Collins en banc ruling or thinks that senior pref remains AFTER the overpayment (I cannot see that)
Basically, Warner asked to hear Calabria tell u that the government will stick it to private shareholders -- who is this guy?
Amen, very good advice till we get closer to November (unless there is a good SCOTUS decision...)
Having said which, I am now holding prefs lol
Yeah, the CET1 is there for a reason - or at least its being there provides a reason for certain actions
A very long 6 months to wait, I really need to stop following so much - a watched pot never boils etc etc
Common is King Canute commanding a tide of dilution to stop - May all drown sadly...
So capital rule comment period ends August 20th, running 3 months (90 days?), from May 20th release
Going to be in the thick of the dirtiest Presidential campaign of modern era at that point, imho, so if FHFA releases final rule in September (?) or October then it will pass unnoticed in the heat of the election
I am curious to see who says what in the comments -- but we need these FA's hired by the companies now
(I am also curious what relation, and legal obligations, those FA companies hired by FnF have to the FHFA and Calabria -- is he their boss right now?)
Stinkie, I forgot, you are so right -- no cruise control on FnF!
lol
Just brakes that often fail...