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The liquidation pref going to 0 makes the outcome unchangeable. Politicians can regulate and curb excess but government interference is all but over until congress acts, which is doubtful.
The key point related to the “amendment” is it, at its core, is contradictory to itself in that it is impossible to raise capital without exiting conservatorship. There can only be one reason for that, and it is to demonstrate to Scotus, even with the NWS de facto cancelled per the prospective remedy endorsed by the fifth circuit, that the PSPA will keep the GSEs in conservatorship indefinitely, at least for decades as the FHFA stated.
Scotus IMO is almost forced to rule that not allowing the NWS to have paid down the liquidation preference is not “good faith” dealings, and will need to grant Collins’ request on remedy = liquidation pref down to 0.
IMO, there is no other logical conclusion. The contract is so onerous that it is laughable and shows the huge contrast in how the PSPA would’ve been paid down and what happens if it basically never can be.
The government before Scotus is not challenging the fact, as they did in lower courts, that the gov loaned $180 billion to the GSEs and received over $300 billion in return to net a profit of $124 billion = %70 profit for the government. The gov is only challenging the right to even challenge the NWS by Collins.
All Collins is asking for is the liquidation preference be deemed paid. Collins isn’t even asking for the $124 billion be repaid, but as stated in oral arguments, Collins isn’t opposed to having a significant portion, or all, of the $124 billion repaid. As stated during oral arguments, the real request by Collins is as simple as an accounting adjustment and comes at no expense from the gov given the gov made $124 billion.
I’ll post later on why I think the gov can’t write off the liquidation pref given the DOJ could sue on behalf of taxpayers ...
Rick I disagree 100%. I think that Mnuchin cancelled the NWS to show Scotus what the fifth circuit remedy looks like in reality - which it is now in a practical sense - and how the government can continue to keep the GSE’s in conservatorship indefinitely even with the NWS canceled.
Anything less than deeming the PSPA’s paid -zero liquidation preference - does nothing for the private companies that are the GSEs.
That is the purpose of the agreement. The entire settlement narrative is completely 100% false and is there to attempt attribute value to the JPS shares.
100% false. The letter gets destroyed if the liquidation preference goes to 0. It amazes me how the most important points go over JPS heads.
The real point is JPS is left twisting in the wind and if Scotus writes the SPSPA to 0 then common outperform JPS by many multiples, and probably by an order of magnitude further out.
They can send the amendment to scotus to notify them of the update. It basically shows Scotus there is no end in sight even if the NWS is technically ended. IMO it takes a potential remedy out of play showing how just the end of the NWS per the 5th circuit does nothing to provide remedy to Collins.
It shows how prospective relief means nothing as the liquidation pref can (and has been) increased dollar for dollar of retained earnings and the 10% dividend payment can be reinstated Even with the NWS being canceled. It shows the neverending conservatorship due to the gov terms basically preventing any repayment of a loan.
Scotus will be forced to act, or swallow the bitter pill of allowing a de facto nationalization in the United States of America.
The latest amendment was basically meant to show how outrageous a ruling against Collins would be. There were probably a couple variables factoring into this latest amendment. I think one of the heavily weighted variables is to show a contrast between Scotus not intervening and seeing how true nationalization could look.
I think this shows Scotus the future “counterfactual” (oxymoron) world that will exist if they doing nothing.
BTW, Scotus isn't buying the one sided story to keep investors and politics in line = the gov gave 180 billion.
The flipside of that story is the $300+ billion repaid, which is rarely reported and is front and center before the only 9 folks that matter right now.
Another complication is Scotus appointed counsel to defended the single director question even when the gov didn’t want to defend it.
So why does the government need to settle again?
So let me get this new JPS narrative straight.
Yellen/Biden settle but not Mnuchin/Trump? What bizzaro world are we in now?
When Yellen announces they will wait for SCOTUS to rule within a month's time, you'll need another narrative.
For arguments sake, lets say even if a settlement terminated a constitutional question before SCOTUS, which might be the first time in history (not settlement, constitutional question settlement), Biden would then need to live with Calabria until 2024. Okkkkk ...
But you counter with, "they could sever the APA question from the constitutional question and only settle the APA claims ..." Good luck!
JPS are not the only ones at the table for SCOTUS, and frankly for all the lawsuits ... "but the government will buy them all off ..." Good luck!
A narrative to fit a desired outcome. Bank on Scotus ruling ...
Treasury can write down the liquidation preference as an accounting entry with no cost to the US government, period.
Scotus would rule on a constitutional question with or without a settlement, which could vacate the whole FHFA ...
StockP - if the gov is cornered, why didnt they settle before or after oral arguments. Rest assured the courts will handle the heavy lifting which seems to have been always the case.
Golf - there will be no settlement before Scotus. JPS are beyond dreaming ... this all goes to Scotus and the whole lynchpin to this whole nasty mess is the liquidation preference.
Let’s be crystal clear for those who think Scotus is going away, which is way beyond wishful thinkng and is spin to assign value to JPS shares. There will be no settlement that stops Scotus from ruling. The proverbial cat is out of the bag. There is a constitutional question in front of Scotus and they will follow through on their responsibility. Scotus on the constitutional question could void the fhfa ab initio. There is risk there and no settlement will remove that risk.
Which means there is no fast capital raise and Calabria will be gone anyway. A Biden admin will probably want to lower the cap rule - see Madmax’s quote below.
The whole settlement theory now is such wishful thinking it epitomizes backing into a narrative to fit a desired outcome. Hope precariously and hopelessly hanging by a thread.
On the APA question, again, no settlement will stop Scotus from determining if direct claims can continue. If direct claims can continue, look for more litigation.
To think now, all of the sudden the gov is worried about losing and wants to settle now before Biden even has a chance to get his admin up and running is hilarious. Trump and Mnuchin had a chance before oral arguments. Now Scotus will follow through and the latest amendment is almost exclusively predicated on Scotus writing down the liquidation preference to 0. Enjoining any FHFA directors from implementing any new NWS, and monetary damages, or voiding the whole FHFA.
Now, here is Madmax. You may not like her but this is the Dem’s thoughts and this new amendment ties one Dem hand behind their back. They will want to revise down Calabria’s cap rule.
GAK - that is why this whole agreement is tee’d up for SCOTUS. The JPS folks fail to understand that SCOTUS will follow through to the end as getting cert is in the single digit percentages. They’ll off their opinion ...
Nice try, kthomp. And if direct claims are allowed by SCOTUS? Scotus will still offer an opinion even if Collins settled monetarily. Misleading ...
If they had settled before oral arguments then maybe you could get other groups to settle before they exhausted their appeals. But prognosticate as some will, SCOTUS will rule as they aren’t in the business of wasting time.
Very false ...
The whole agreement is predicated on SCOTUS writing down the liquidation pref. If that doesn’t happen, then congress will need to setup utilities otherwise it is indefinite nationalization.
Utilities could still happen but fair market compensation to the companies => shareholders would need to happen.
Could this agreement force a bill to surface? A longshot for passing. And what happens when Calabria is fired?
Fascinating...
Golf, read the clause on litigation. It is all there. This has always been a litigation play for me.
The whole agreement was an easy way to punt to SCOTUS. If SCOTUS rules the liquidation preference is 0, the whole thing goes away.
No capital raise allowed until all material litigation in relation to the conservatorship or NWS that exposes the gov to more than $5 billion in damages are adjudicated without appeal or is settled with prejudice.
More retained earnings ...
As expected and was reported by the world, it was PSPA-lite. The amendment is so obviously setup for SCOTUS to rule. Even if SCOTUS rules in favor of Collins, if there are still major outstanding litigation in excess of $5 billion, there will be no cap raise.
More retained earnings ... and SCOTUS in T-minus 6 months or less ...
If you have no faith in SCOTUS, I have no idea what you are doing here unless you want the companies to lose for some bizarre JPS theory ...
Anything that continues to allow for more retained capital until SCOTUS is par. Par is not bad for those of us who have only been here for ~2 years.
Donot - you missed the "preferred" red bold. There are more extreme paths the court can take. You also miss the nuance of how to get what you want without being aggressive. Thompson is a consummate professional of the highest degree.
The Warrants were part of the SPSPA. The government will profiteer from the warrants even more and it will cause more litigation unless they are handled in a similar manner with the other 100+ companies that took bailouts.
The companies were given an opportunity to repurchase the warrants at market prices. It is all over Treasury's website.
Treasury would be breaking precedent. The warrants have become political and investor football. If SCOTUS rules that the overpayments deem the PSPA paid back, taking 79.9% of the company will be considered ultra vires again by the gov.
Go asked Thompson ...
Holden - Have you read through the oral arguments? I listened to Thompson's calls. Here are excerpts from SCOTUS oral arguments, which is the latest "update" from the distinguished Mr. Thompson. I bolded and highlighted key sections so it is plain as day what is being asked for for Commons and JPS.
Pages 69 to 70
Happy - the only focus of JPS is to repeatedly and daily comment on commons negatively. You have it very backwards. Cause = JPS posting on commons daily, Effect = JPS twisting in the wind. Until that significantly subsides, I have no problem pointing out the truth on JPS.
JPS is dead money for a long time and many JPS investors were not aware that SCOTUS is being asked to write down the Sr Preferred share's liquidation preference to 0.
Good luck!
Navy - I see JPS still don’t understand that SCOTUS can deem the PSPA paid, which kills the senior preferred shares, and de facto the warrants. Shocking there are not a lot of well informed people in the purported superior investment vehicles. Talk about getting swindled by the main JPS posters. Sad ...
Stockprofiter - JPS will be left twisting in the wind and commons didn’t continue the sell off like JPS because there is SCOTUS and more retained earnings.
JPS are dead money for years to come. No JPS conversion ... it was a nice sentiment while it lasted ...
Fast Eddie - I've been here for 2 years only. I'm still a relative newbie ...
Doubling punts to SCOTUS ...
Skeptic - no one knows, but with 5 heavy conservative justices, it is worth the speculation ...
FastEddie - you should go read the real 100+ pages of oral arguments. Doubtful you did ...
Mnemonic - 4 million shares with a little over 2 hours to go? No volume what so ever ...
You must be a JPS shareholder as JPS volume is extremely high ...
Wings, I hope you are right. I think the liquidation pref is what is keeping this down and the inability to pay off the liquidation pref.
If Mnuchin isn't going to do it, it will be up to SCOTUS and I think they will.
Hopefully there is contingency built into any amendment related to SCOTUS.
That sounds familiar ...
The case does not get mooted with an NWS official cancellation. In fact, nothing is stopping their opinion now.
SCOTUS before any reinstatement of the NWS ... Pass judgement after the highest court in the land with 5 heavy conservative justices weigh in.
Starting to appear like he did buy JPS ...
Commons have a retention cap increase and an end to the NWS already priced in.
JPS was trading on a conversion per what Calabria was pushing - fast recap and release. It doesn't appear Mnuchin was onboard. Therefore, JPS knew dividends were pretty much a non-starter for a long time, and a conversion was the play based on the capital restructuring.
Still could happen but it probably won't happen soon.
This is the reason Commons are holding and JPS are not.
I hear ya - there is definitely value there. It is always a question of time ...
Because Junior Preferred Shares may not get dividend payments due to the capital rule and no capital distributions, e.g., dividends, until capital buffers are met.
JPS were also hoping for a quick recap and conversion into common shares.
It doesn't appear that is going to happen now.
SCOTUS is next ...
A true end to the NWS is welcome news. SCOTUS will need to weigh in on the SPSA.
If the NWS only is cancelled, it is an indication of more retained earnings. SCOTUS will need to do the heavy lifting and I think they will.
Outside chance on Thursday for a SCOTUS decision ...
nicely done ...
The interesting thing is that the chairman of the BOD Sheila Bair applauded FSOC for not defining FnF as systemically critical companies.
It will be interesting if Mnuchin tries to solidify that some how. Why waste time defining it one way when the incoming administration and possibly FHFA director want to redefine the GSEs.
Who knows? A lot will be known over the next 5.5 business days.