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Obama AIG Fix-It Man Bets on Fannie and Freddie Turnaround
Dan Freed
04/05/13 - 04:09 PM EDT
http://www.thestreet.com/print/story/11888674.html
NEW YORK (TheStreet) -- Jim Millstein, the restructuring guru who oversaw the Treasury's former 79.9% stake in AIG (AIG), owns preferred shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) on the view that the two government-sponsored enterprises should be recapitalized with private sector money -- a plan Millstein himself has been promoting.
Indeed Millstein and Phillip Swagel, a former Treasury official during the George W. Bush administration, have been the "leading voices," arguing for privatization of the GSEs, according to a March 20 report from CRT Capital Group's Michael Kim.
Millstein, who left the Treasury in February 2011, says he has spent the past year and a half formulating and promoting his plan to fix the U.S. housing market, which now relies almost entirely on government support.
"Any time anyone has asked me -- inside the Treasury Department on the couple of occasions they've deigned to talk to me and on the Hill -- I've always told people [about the investment]," Millstein said during a series of phone interviews with TheStreet this week. The former Lazard (LAZ) and Cleary Gottlieb restructuring specialist also hopes the firm he founded after leaving the Treasury, Millstein & Co., can land an assignment helping to implement the turnaround plan he has laid out in a 63-page white paper and a condensed 18-page version.
Millstein says he told Swagel, a professor at the University of Maryland who testified before the Senate Banking Committee in February during a hearing on housing finance, about his investment when they co-authored an Oct. 12 opinion essay in The Washington Post arguing the Treasury should "restructure, recapitalize and privatize Fannie and Freddie's mortgage-guarantee businesses."
Millstein's investment is not disclosed in the essay, however, and Swagel says he was not aware of Millstein's investment at the time of publication.
"My experience is that Jim is a really honest, straightforward guy. He and I could have different recollections on what he told me and what I knew, but that doesn't take away from my view of him," Swagel says. Swagel, who has published several papers explaining his thinking on housing reform, says he has "absolutely no investments in anything remotely related" to the issues on which he has been advocating.
Millstein declines to say how much he has invested in Fannie and Freddie preferred shares, though he says the amount is something he "can afford to lose," adding it is "a total speculative bet." Millstein adds he has more invested in a house he built and hopes to sell. He believes that sale, like the rest of the housing market, would be adversely affected if government officials followed through with their apparent intention to wind down Fannie and Freddie.
"[S]hould I have disclosed that I'm a builder and house owner who would be benefited from stable mortgage credit as well as having speculated in the preferred?" he asks.
"If you want people like me who are experts to participate in the policy debate and publish and add their views to the news, and you said to them 'You have to disclose everything -- your personal investments, your personal business, your existing business that would be affected by your views,' the disclosure would be longer than the piece.'"
The Millstein & Co. white papers, published after the Washington Post essay, note that the firm "may purchase and sell securities, derivatives and other instruments issued by one or more entities which are the subject of this report and may currently or in the future provide advisory, investment banking and other securities related services to such entities and to investors in the securities issued by such entities." Politico Pro first reported the Millstein preferred share investment April 2.
Millstein is not the only person who thinks GSE preferred shares are worth a gamble. Hedge funds including Akanthos Capital Management and Bronte Capital have hung onto investments in GSE preferred shares for well over two years .
Hayman Capital's Kyle Bass was also very bullish on Fannie and Freddie preferred shares, but then backed out in 2012 after he decided both Democrats and Republicans "wanted them dead.".
The Freddie Mac "Z" shares (FMCKJ), one of the more widely traded preferred issues, have bounced around dramatically over the past two years after losing 99% of their value when the Treasury put the GSEs into conservatorship in 2008. The "Z" shares have more than doubled in the past month and more than tripled over the past year as the GSES have shown ever-increasing profitability. They are still worth less than 20% of their original value, however, Keefe, Bruyette and Woods calls them a "total fantasy."
Whether a big payoff in GSE preferred shares depends upon policymakers is a matter of debate. Millstein actually believes a liquidation of the GSEs might be the surest way for his preferred stake to pay off.
That's because Millstein says the statute under which Fannie and Freddie would be liquidated incorporates an "absolute priority rule," like the U.S. bankruptcy code.
"If there's an excess of cash in the liquidation and all creditors have been paid and the government's been paid then more likely than not it goes to the junior preferred," Millstein says. (The "junior" preferred shares are those in which Millstein and hedge funds are invested, which in a traditional bankruptcy would be next in the line of creditors after the government's senior preferred shares.)
On the other hand, Millstein says, "If my plan were enacted, I don't know, frankly, how it would play out because my plan is based on the government has to get paid first in the AIG-like restructuring and so if it's an AIG-like privatization, whoever's sitting in my chair at Treasury has to be confident that he's got enough of the common stock to pay the outstanding amount of the senior preferred back in full. So when I was sitting in that seat I figured if I had 92% of the common, the Treasury Dept. and the taxpayers would be protected. I don't know what this guy's going to think and I don't know what market conditions are going to look like when that privatization is started in 2015 or '16 and who knows what the junior preferred would be entitled to."
Whatever policymakers ultimately decide, at least one other investor, Bronte Capital's John Hempton, believes the Fifth Amendment prohibition of the taking of private property for public use without just compensation is what will protect his investment in Fannie and Freddie preferred shares.
Specifically, it was the Aug. 17 amendment to the 2012 Treasury's GSE preferred stock purchase agreements that Hempton believes will ensure that he gets paid.
"I do not like the original [2008] takeover -- but I do not think it constituted regulatory takings. Indeed they were very careful," Hempton wrote TheStreet via email. "Last year they were sloppy," he added. (To see what former House Financial Services Committee Chairman Barney Frank, who authorized the 2008 government GSE takeover, thinks about Fannie and Freddie shareholders click here.)
Millstein doesn't agree with Hempton on the Fifth Amendment issue, though the potential professional boost the turnaround adviser could get from be assigned to take Fannie and Freddie private looks to be potentially far greater than whatever he is likely to earn on the preferred share investment.
"If somebody actually decided to implement our plan and Congress passed it, this is -- like AIG -- one of the largest restructurings in the history of the world that will need to be implemented: to privatize these companies and recapitalize them. And it wouldn't hurt Millstein & Co. to have been associated with it."
-- Written by Dan Freed in New York.
sorry bout your ol gals, my guys kickin ass! I'm up $15,800 just today!
I'll raise a glass on a Friday win or lose! bottoms up!
http://finance.yahoo.com/quotes/FMCC,FNMA,FMCKJ,FMCKI,FMCCM,FMCCK,FMCCT,FMCCI,FMCKK,FMCCG,FMCCH,FMCCL,FMCCN,FMCCO,FMCCP,FMCCJ,FMCKP,FMCCS,FMCKO,FMCKM,FMCKN,FMCKL,FNMAP,FNMAO,FNMAM,FNMAG,FNMAN,FNMAL,FNMAK,FNMAH,FNMAI,FNMAJ,FNMAS,FNMAT,FNMFM,FNMFN/view/v2?info=view_updated
fnmag hit $9.50....abnormal spike for that series
http://finance.yahoo.com/quotes/FMCC,FNMA,FMCKJ,FMCKI,FMCCM,FMCCK,FMCCT,FMCCI,FMCKK,FMCCG,FMCCH,FMCCL,FMCCN,FMCCO,FMCCP,FMCCJ,FMCKP,FMCCS,FMCKO,FMCKM,FMCKN,FMCKL,FNMAP,FNMAO,FNMAM,FNMAG,FNMAN,FNMAL,FNMAK,FNMAH,FNMAI,FNMAJ,FNMAS,FNMAT,FNMFM,FNMFN/view/v2?info=view_updated
europa -- any friday shortly after earnings with no slap in the face by demarco is a good friday!
it will be a nice weekend! I am going shopping, plan to drop a few hundred on jeans and a dress shirt, maybe two.
not going crazy...but "daddy needs a new pair of shoes" LOL
not positive, but I'm pretty sure, demarco has spoken of common and preferred stock having little or no value.
10-K aside, they have to say that.
I'll dig a bit tomorrow and see if I can find the "impuning" comments.
that said, you are correct on the rest...i see no case of equity holders being removed from a profitable company without just compensation...
Sen. Geo. Mitchell on last night's "Charlie Rose" [Dem. Senate Majority leader, envoy to the N. Ireland peace process, Obama envoy to Israel Middle East talks]
convenient to this thread...he is speaking about how presidents do not seek enough information about arguments that differ from his closest advisors, that they live in a bubble. as far as F&F thinking goes, all beware his (paraphrased) quote:
"Our brains are hardwired to receive and remember information consistent with our prior views. We are inclined to not hear or take in information that conflicts with that view. We interpret information based on prejudices and biases of prior beliefs."
mhill- kudos for posting. need the good, bad, and the ugly (maybe I'll watch that tonight?? hmmm....)
anyway, all insight is relevant, we can each think critically about the source and content.
thanks again
singing zip-a-dee-doo-dah and can't get the tune out of my head.
beautiful day in KC. that blue bird bout to land on my shoulder any minute too!
CCK (I hold it) popped to $7.71 at the end of the day on heavy volume.
this is getting fun....i think debil right, govt running out of options to render the jr.'s worthless....
but I still remember august 17th :(
http://finance.yahoo.com/quotes/FMCC,FNMA,FMCKJ,FMCKI,FMCCM,FMCCK,FMCCT,FMCCI,FMCKK,FMCCG,FMCCH,FMCCL,FMCCN,FMCCO,FMCCP,FMCCJ,FMCKP,FMCCS,FMCKO,FMCKM,FMCKN,FMCKL,FNMAP,FNMAO,FNMAM,FNMAG,FNMAN,FNMAL,FNMAK,FNMAH,FNMAI,FNMAJ,FNMAS,FNMAT,FNMFM,FNMFN/view/v2?info=view_updated
very abnormal.
i wonder what happened?? decent volume everywhere...ask on the more thinly traded are 10-20% above current prices
there is a buyer and a seller...wonder why the seller sold??? buyer must like the future? [shrug?]
I am very content with a smile on my face. I can get out at even now, or hang on. I see a winner here...just keeping my same tone that I've had for a couple months, reminding everyone that we aren't out yet!
August 17th was a dark Friday morning...FHFA release an hour before the bell, give or take. A couple weeks after great earnings.
Well, I'm hanging in till at least May as the 1Q for both companies will be yet another record breaker.
praying I don't live to regret that decision...
but...either they come out and outright tell us that junior securities will have no value (rather than "hinting" or "Advising" as such) or they release from conservatorship at some point down the road.
the other alternative is Congress passes a bill to kill them. but I don't see congress passing anything substantial. I do think they might tack on the Senate bill as an ammendment to prohibit gaurantee fee hikes (homeowner tax) to pay for government programs and no redemption of sr. preferred without congressional authority. that later portion of the bill could put us in limbo a LONG time.
well...i'm riding the wave for now. buy the rumor, sell the news. trouble is, if "sell news" gets released, it will be another 75% blow to the current share prices...and probably faster than any of us can execute a trade on the way down.
FMCCI at $8.10, 16cents
somebody got jacked with a small order...probably is new to this, this security doesn't behave like the wacky FNMFM, but, a price above $8 is on the board
http://finance.yahoo.com/quotes/FMCC,FNMA,FMCKJ,FMCKI,FMCCM,FMCCK,FMCCT,FMCCI,FMCKK,FMCCG,FMCCH,FMCCL,FMCCN,FMCCO,FMCCP,FMCCJ,FMCKP,FMCCS,FMCKO,FMCKM,FMCKN,FMCKL,FNMAP,FNMAO,FNMAM,FNMAG,FNMAN,FNMAL,FNMAK,FNMAH,FNMAI,FNMAJ,FNMAS,FNMAT,FNMFM,FNMFN/view/v2?info=view_updated
ACAS will go to thirty by 2015
no doubt.
i would be there if it weren't for FMCKJ et. al. 6x+ from here....
I still have 30% of liquid assets (in Roth) in ACAS.
historical trading once dividends kick in is 1.3x book value (NAV)
NAV is, what? $17 today? buying back shares while exempt from dividends under IRS code till tax assets eaten up? we have a LONG way to run. not as long as freddie, hence my weighting.
$30 is easy
U.S. Representative Scott Garrett, a Republican from New Jersey and chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, talks about the outlook for the housing market and his proposal to wind down Fannie Mae and Freddie Mac without disrupting the market. Garrett, speaking with Erik Schatzker and Scarlet Fu on Bloomberg Television's "Market Makers," also discusses the potential imposition of legal restrictions on banks deemed too big to fail. (Source: Bloomberg)
video:
http://www.bloomberg.com/video/n-j-s-garrett-says-fannie-freddie-must-wind-down-htZcM81gRnaxvPGVm4aUgQ.html?cmpid=yhoo
Wall Street Journal Misses Fannie Preferred Point
[PVD pumping for us again! He has got to be long! Hope he is right...he might be missing the point too...the long drumbeat of F&F death in washington hasn't really changes (but there have been a couple rays of light the last few days)
http://www.thestreet.com/print/story/11886503.html
Philip van Doorn
04/03/13 - 12:16 PM EDT
NEW YORK (TheStreet) -- The government is going to make a lot of money on its investments in Fannie Mae (FNMA) and Freddie Mac (FMCC) and junior preferred shareholders may eventually get in on the gravy.
In a Heard on the Street article Wednesday, the Wall Street Journal rightly said, "there is no plan, or mechanism, in place" for the company to repurchase $117.1 billion in preferred shares held by the government. But the Journal misses the point that investors in junior preferred shares of Fannie and Freddie may be see a huge payoff over the long term.
Fannie Mae on Tuesday reported record profits for the fourth quarter and for all of 2012, and said it could see a potential $58.9 billion windfall from the recapture of its valuation allowance for deferred tax assets (DTA), as early as the first quarter.
Fannie Mae's shares rose 13% on the news, closing at 90 cents on Tuesday. Sister mortgage giant Freddie Mac saw its shares rise 14% to close at 87 cents. Both Fannie and Freddie -- collectively known as the government sponsored mortgage enterprises -- were taken under government conservatorship at the height of the real estate crisis in September 2008.
Under its initial agreement with its regulator, the Federal Housing Finance Agency and the U.S. Treasury, Fannie Mae agreed to pay quarterly dividends at an annual rate of 10%, even if it failed to turn a profit, which forced the insolvent company to make multiple draws from the Treasury in order to continue operating and cover the dividends. Then in August 2012, after Fannie posted profits for the first and second quarters, the agreement with the Treasury was amended so that beginning in 2013, the company would no longer pay a 10% dividend on the government-held preferred, but instead would pay an amount based on the company's "net worth as of the end of the immediately preceding fiscal quarter."
Fannie Mae is now, essentially, paying all of its profits to the Treasury, while maintaining a "capital reserve" of $3 billion, which declines by $600 million a year, until it reaches zero in in 2018.
If and when the company recaptures some or all of the $58.9 billion DTA, that amount will be added to the previous quarter's profit, less the capital cushion, for a large dividend payment to the government.
Fannie Mae spokesman Andrew Wilson confirms there is no mechanism in place for Fannie Mae to repurchase any of the senior preferred shares held by the Treasury, no matter how high the dividend gets. He also says, "it is right and appropriate that our profits go to the taxpayers."
It certainly makes sense for Wilson to say that, but some quick back-of-the-envelope calculations show that the government may soon be looking at a shockingly high yield on its preferred investment in Fannie Mae.
Fannie Mae's second-quarter dividend to the government will be based on its first-quarter results. If the company were to recapture the full DTA, while also paying the same $4.2 billion dividend it did for the previous quarter, the total first-quarter dividend would be $63.1 billion. If we add that to the $35.6 billion in dividends already paid, we potentially have $98.7 billion in dividends paid to Uncle Sam through the second quarter.
That is a mighty hefty return for an investment of less than five years. Based on the full $117.1 billion in preferred shares, the dividend would make for an annual yield of 17% over a full five-year period. Of course, with the actual period being less than five years, and the government's investment slowing building up to the $117.1 billion, the actual yield would be higher.
And even if this all happens through the second quarter, there is no end in sight, since Fannie Mae's agreement with the Treasury has no expiration date.
Freddie Mac is in a similar position, owing the federal government $72.2 billion as of Dec. 31, with a DTA valuation allowance of $31.7 billion. Freddie reported net income of $4.5 billion for the fourth quarter and $11 billion for all of 2012. The company paid the U.S. Treasury dividends totaling $23.8 billion in dividends from 2008 through 2012.
Even though dividends on junior preferred shares in Fannie and Freddie have been suspended since the companies were taken under government conservatorship, and even though there is no end in sight for the Treasury preferred, some investors see value in the junior preferred shares.
For example, Fannie's preferred series E (FNMFM) shares, with a par value of $50.00 and a coupon of 5.10%, rose 23% on Tuesday to close at $8.00. The shares were flat in late morning trading on Wednesday.
Freddie Mac's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, rose 15% on Tuesday to close at $3.88. The shares were up 4% in late morning trading on Wednesday, to $4.02.
The Treasury holds a warrant to purchase up to 79.9% of Fannie's common shares, at an exercise price of just $0.00001 per share. That makes a long-term investment in the common shares a rather dubious proposition.
But for the junior preferred shares, the story is different. For one thing, the government is looking at a potential political time bomb, as it feasts on Fannie Mae's dividends. Numerous voices will be asking why the Treasury doesn't want its preferred investment -- the taxpayer bailout -- to be repaid. Fannie is now a profitable company with $3.2 trillion in total assets as of Dec. 31. It's not simply going to disappear, despite what we hear from various politicians.
There is also a possibility of the junior preferred shareholders filing a lawsuit against the government.
Australian hedge fund manager John Hempton, said in an interview with TheStreet on March 21 that the government's windfall on Fannie and Freddie could cause an "enterprising lawyer [to] take the case all the way to the Supreme Court and win."
Hampton said the August deal for Fannie Mae and Freddie Mac to effectively pay unlimited dividends to the government violated the Fifth Amendment of the U.S. Constitution, which requires "just compensation" to be given if the government seizes private property for public use.
Over the long haul, the government's potential for an outrageous yield on its preferred stake in Fannie and Freddie may constitute just the sort of "public use" that will end up with a big payout to junior preferred shareholders.
-- Written by Philip van Doorn in Jupiter, Fla.
Santelli: "INSANITY" -WashPo says Bama wants to get low income people into homes:
talks about Freddie and Fannie too:
http://video.cnbc.com/gallery/?video=3000158776&__source=yahoo|headline|quote|video|&par=yahoo
as long as demarco doesn't slam us down with new PSPA, this might have legs...running up on big volume...thinking some sophisticated guys think this is a better and better bet than they did last week/last month.
we shall see..they will be allocating 10% of their portfolio and I'm at 70% now...so if they go to zero, they can still sleep at night...
fmckm 400,000 in trades already...no price change shown, bet it was after hours yesterday...
if drunk daddy demarco is writing an amendment right now to the PSPA, get ready for the bitch slap. IMHO, release from conservatorship not on table now...he has been hounding congress as the only place where resolution can be found (though, the conservator has, I think, sole authority to release F&F (but we all know that he has some people in Treasury and Administration that will have opinions))
anyway, my guess is, if there is plotting on new PSPA terms, it is v. bad for us!!!!
The firms' improving financial health "makes it very difficult to continue whipping up the political, public hostility" toward Fannie and Freddie, said Robert Bostrom, a former general counsel at Freddie Mac. "The intensity of the 'We have to shoot them because they caused all this loss to the taxpayer'—that story becomes a little harder to sell."
Meanwhile, the prospect of continued profits for the companies "could galvanize their opponents to try to do something more quickly, before the true implications of the future outlook begin to sink in," he said.
http://online.wsj.com/article/SB10001424127887323611604578398273539675906.html?ru=yahoo&mod=yahoo_hs
a toast....been a good day...don't buy your yachts yet...
Fannie, Freddie Don’t Deserve Capital Punishment
By James Fenkner Apr 2, 2013 5:30 PM CT
http://www.bloomberg.com/news/2013-04-02/fannie-freddie-don-t-deserve-capital-punishment.html
The rebound in the real estate market has breathed some life back into Fannie Mae and Freddie Mac, the giant mortgage financiers that have been wards of the state since their near-collapse in 2008. The government should seize the opportunity to put them on a path to recovery, rather than killing institutions that, properly managed, could help stabilize U.S. housing finance for generations to come.
This week, Fannie Mae reported net income of $17.2 billion for 2012, the largest annual profit in company history. Freddie Mac earned $11 billion over the same period. Oddly, not a dime of that money will go toward paying back the $188 billion the federal government has lent the two companies over the past several years. Instead, at the government’s behest, about $11 billion will go toward sky-high interest payments on the debt, which the Treasury holds in the form of preferred shares. The onerous payments will leave the mortgage giants thinly capitalized and undermine the investment of U.S. taxpayers, who hold 80 percent of the companies’ stock.
How did we reach this absurd state of affairs? For perspective, turn the clock back to 1937, when Fannie Mae was founded. Mortgages were harder to get and more vulnerable to busts. One bad year and families could get booted from their homes and wake up in the poor house. Fannie Mae and later Freddie Mac made the mortgage market more resilient, engineering 30-year loans with predictable payments, pooling risk and attracting a wide range of investors. For almost five decades, they helped establish a culture of middle-class home ownership that was regarded as a bedrock of American values.
Special Treatment
The system worked so well that politicians couldn’t leave it alone. Steady demands for greater home ownership, lower mortgage fees and, that Beltway delight, special treatment gradually gutted what risk acumen Fannie Mae and Freddie Mac could muster. By 2006, both companies were barely profitable. Rather than maintain credit standards in the face of a housing bubble, they blindly repackaged billions of dollars in risky mortgages that by September 2008 forced them into government conservatorship.
The government bailout placed an unusually heavy burden on Fannie Mae and Freddie Mac. Under terms negotiated by the Federal Housing Finance Agency, the Treasury received a 10 percent interest rate on the preferred shares it received in return for injecting enough money to cover the companies’ losses. That’s double the 5 percent rate initially paid by Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, AIG and other financial institutions that received Treasury funding.
For Fannie Mae and Freddie Mac, the deal worked like the worst of the negative-amortization loans made in the run-up to the crisis. When they couldn’t afford to pay the interest, the Treasury lent them more money to make up the difference. The result is a debt of $188 billion. As conservator, the FHFA did nothing to offer a debt restructuring, a workout or any other relief along the same lines that Fannie Mae and Freddie Mac themselves were doing for tens of thousands of homeowners who owed more than they could pay.
Now the times have changed. As evidenced by the record profits at Fannie Mae and Freddie Mac, the mortgage market is once again lucrative, and big U.S. banks have taken notice. The combined 2012 net interest income at Fannie Mae and Freddie Mac represents over 70 percent of that of JPMorgan, the largest U.S. bank by assets. With such mouthwatering returns on display, what self-respecting banker wouldn’t want to kick Fannie Mae and Freddie Mac out of the securitization market and eat their lunch? The question is whether the government is helping them do so.
Usurious Rates
So far, the government’s approach has been highly inequitable. It has encouraged the banks to pay back their bailout money, and most have done so. At the same time, the FHFA is forcing Fannie Mae and Freddie Mac to pay usurious rates, and plans to ratchet up the payments sharply from 2013. Instead of using their profits to rebuild their capital and prepare for the next housing downturn, Fannie Mae and Freddie Mac will send all the money back to the Treasury, without paying down their debt. With a conservator like the FHFA, Fannie Mae and Freddie Mac will eventually need an undertaker.
The demise of Fannie Mae and Freddie Mac would mean a drastically different marketplace for mortgage securities. It would be dominated by large banks that already have far more sway over the Washington bureaucracy than Fannie Mae and Freddie Mac ever did. Many are the same financial institutions that misbehaved so egregiously during the housing boom that Fannie Mae and Freddie Mac successfully sued them for tens of billions of dollars in damages. If they ran into trouble, the potential repercussions would be so threatening to the economy that taxpayers would have little choice but to bail them out again.
A better option would be to give Fannie Mae and Freddie Mac a chance to get out from under their debt burden. If the government reduced the rate of interest, it’s possible that the two companies could redeem the $188 billion in preferred shares in four to five years. The Treasury would receive the same amount of money whether it comes in payment of dividends or principle. If the companies’ market values then recovered to just half the historic peak, the U.S. government’s stake would be worth more than $70 billion.
How the government acts will be a crucial test of its loyalties. Whose interests is it serving, those of the country’s biggest banks, or those of American taxpayers and homeowners?
(James Fenkner is a certified financial analyst living in Santa Barbara, California. He was a Moscow-based managing partner at Red Star Asset Management LP from 2005 to 2009. The opinions expressed are his own.)
To contact the writer of this article: James Fenkner at fenkner@yahoo.com.
To contact the editor responsible for this article: Mark Whitehouse at mwhitehouse1@bloomberg.net.
i'll post one of those comments from a reputable source on reversal of all DTA's in a couple of weeks if I stumble on one again...there is disagreement on this out there.
we will know all around the 1st week of May!
pundit says 2012 profit to double for F&F in 2013...in that marketwatch.org audio
http://www.marketplace.org/topics/economy/record-profits-fannie-mae-out-woods
the CEO conference call quotes are played in this report too.
run out Q4 to whatever you think the increase in revenue/net interest income will be, make an adjustment of a couple billion for credit provision reversals....so...call it $10bn max???
THEN...reverse $60bn in DTA's...$70bn net income in one quarter. there are reports that the reversal will be done all at once...
easily done...
worst case, Q1 net income without DTA stays the same at $7.6bn...plus 60, that will be a one time huge quarter with $67.6bn in net income...almost all swept to treasury.
mind blowing...
they have been speaking to press for a while...almost two years...but never a conference call....
time to change your name 4cent
Bof A notes the recent rise in both Fannie and Freddie equity trading volume (and price – up 13% and 14% respectively today) as investors increasingly see much more positive long-term outlooks. More from Misra:
http://blogs.barrons.com/incomeinvesting/2013/04/02/bofa-record-fannie-mae-profit-could-hurt-agency-debt-mbs/?mod=yahoobarrons
In a nutshell, the large earnings of GSEs combined with the new way GSEs make payments to the Treasury raises the possibility that not only might the GSEs return all the borrowed capital to the government, but at a surprisingly fast pace. Although we would not be surprised to see episodes of small to moderate widening of debt spreads based on these developments, our view is that this earnings story does not pose a real threat to debt holders….
Based on our understanding of the rules and how we see the government’s incentives, especially around keeping mortgage markets fully functional and maximizing the benefits to taxpayers, we would see widening episodes as buying opportunities. We still like the longest end of the debt curve because we think it prices in the most risk premium for an uncertain GSE future. The Treasury department has reiterated its support of GSE liabilities through the available capital lines. We expect these capital lines to remain available during any transition to a new mortgage finance system given the very limited circumstances under which the capital lines can be terminated.
16cents: FNMAT at $4.02, high $4.14
highest ever seen except schizo rock star FNMFM
http://finance.yahoo.com/quotes/FMCC,FNMA,FMCKJ,FMCKI,FMCCM,FMCCK,FMCCT,FMCCI,FMCKK,FMCCG,FMCCH,FMCCL,FMCCN,FMCCO,FMCCP,FMCCJ,FMCKP,FMCCS,FMCKO,FMCKM,FMCKN,FMCKL,FNMAP,FNMAO,FNMAM,FNMAG,FNMAN,FNMAL,FNMAK,FNMAH,FNMAI,FNMAJ,FNMAS,FNMAT,FNMFM,FNMFN/view/v2?info=view_updated
ha ha!!! this the best negative news they could find?!?!?!?!
" More importantly, Fannie Mae continues to use questionable methods. Its use of “inverse floaters,” which are bets on homeowners staying in expensive mortgages, received some congressional scrutiny last year.
The company said it stopped making the bets, but you can see the problem here. Fannie and Freddie are still overwhelmingly the biggest buyers of mortgages in the country. The government backs more than 90% of such loans — more than twice the amount it did a decade ago. "
http://www.marketwatch.com/story/fannie-mae-and-fuzzy-math-2013-04-02?siteid=yhoof2
i'd love a scotch.
celebratory.
but, the evening will come to an end...I ask, will drunk daddy go to bed smiling on us with blow-out great news, or will he get pissed off that he only gets Government salary wages while CEO makes millions and jr. pfd. can make billions and smack us to the floor????
for now, bottoms up! great day/night so far!
i'm definitely staying in till Q1 earnings as only one month away and will be blow-out for sure. maybe it will even be enough to send daddy demarco to rehab and we can all live as a nice happy family.
("drunk daddy" metaphor from Cherry Poppin Daddies album in the 90s, Zoot Suit Riot...there is a track called Drunk Daddy...it's pretty dark really...)
Bitch slap coming?
Heavy volume today...heavy. People believe in this now, big money. But...man I wait in fear for the next comment out of Treasury that these shares will have little or no value! UGH!!!
To re-post:
I fear August 17th
just when we feel out of the woods, US Treasury beats us down...I feel like an abused co-dependent...all looks great, but when is the next beating going to come?!?!!? or are we finally going to have peace and happiness?
1/3 of my funds in ACAS still...but it's locked in a Roth...so, no luxury goodies for me from my ACAS stash...need F&F
thx for tip. last time i did it was maybe 6 years ago...
safe journeys! and I can't private message, but would be interested in how you fly cheaper in 2013. my wife is english, so she goes about once a year, me about every 18 months.
I've done it three times with no problems.
however, now with kids, we have three seats to fill, and soon a fourth! so, it's coach for us till F&F resurrect...we shall see on that one.
Anyway, guess I got lucky with the online dealers. one would have to be careful for sure. would never pay upfront till ticket in hand...once I had to drive to minneapolis airport and get it at the ticket counter...that was some ten years ago and I forget exactly how that transaction went down...but everyone was happy and I went to london biz class for about 2 grand.
tainted...assume you buy freq flier miles?
i have done that...just google "cheap business class fares" or something like that and there are brokers that will hook you up with people willing to buy a ticket in your name with their miles they never expect to use....
camaro -- a resurrection, that's what the weekend is about. let's hope it's an analogy for us as well...
yeah..i thought that was the best quote!
FHFA lawsuit Humorous take...lawyers get skewered here!
http://dealbreaker.com/2013/03/banks-want-a-chance-to-prove-fannie-and-freddie-knew-they-were-being-lied-to/#more-100576
27 Mar 2013 at 6:05 PM
Banks Want A Chance To Prove Fannie And Freddie Knew They Were Being Lied To
By Matt Levine
Ninety percent of what happens in the typical lawsuit is (1) a lawyer for one side sends a letter to the other side asking for some information to prepare for a trial that will never happen, (2) the lawyer for the other side sends back a passive-aggressive letter refusing to provide that information, and (3) the lawyer for the first side sends a passive-aggressive letter to the judge saying “NO FAIR.” Seriously, that’s what happens. It’s called “discovery,” and it goes on until the lawyers’ bills have gotten big enough that everyone decides to settle the case.
In that milieu, someone sending an aggressive-by-passive-aggressive letter qualifies as huge news, and so there is a lot of excitement over this rather tart mandamus motion that fifteen big banks filed to overturn some discovery rulings that Judge Denise Cote made in a mortgage-backed-securities lawsuit. I will not attempt to convince you that its tartness is all that interesting; I just want you to have context for why some people think it is.
The case is interesting though. The FHFA, the regulator that oversees Fannie and Freddie, is suing the fifteen banks1 for selling crappy subprime residential mortgage-backed securities to Fannie and Freddie. Being a securities-fraud lawsuit, the basic claim is “you lied to us in the offering documents for these RMBS, and we relied on those lies, so we bought your RMBS, and then we lost money because of your lies.” And the lies in the offering documents are not “these mortgages will never default!,” but rather lies to the effect of “we bought these loans from originators, and reviewed those originators’ underwriting practices, and we believe that the originators underwrote them carefully and didn’t just stuff them full of fraud.”
The banks make a pretty good point, though, in this motion: Fannie and Freddie, who were being deceived by the big underwriter banks into buying all these RMBSes stuffed with crappy mortgages from crappy originators, were also separately buying similar mortgages directly from the same originators. And, presumably, doing whatever due diligence they expected the underwriter banks to be doing:
During the same period in which the GSEs’ [Fannie & Freddie's] “Private Label Securities” or “PLS” units purchased RMBS whose offering materials FHFA alleges were misstated because of a “widespread abandonment of originators’ reported underwriting guidelines,” the GSEs’ Single Family units competed with Petitioners [the banks] to purchase, securitize, and guarantee hundreds of billions of dollars’ worth of mortgage loans from the very same originators. These Single Family or other non-PLS units at times helped select the collateral backing the PLS at issue in these cases. They had first-hand knowledge about originators’ lending practices and would have been aware of any widespread abandonment of underwriting guidelines by those originators. Conversely, if the Single Family units were unaware of any “pervasive and systematic breaches” of underwriting guidelines despite their extensive dealings with originators, that fact would undermine the fundamental premise of FHFA’s claims.
Roughly half of Fannie’s 2008 mortgage portfolio, for instance, was whole loans on houses; the other half was RMBS. The FHFA’s core accusation is that the banks looked into the originators’ dealings, knew they were fraudulent, and passed them on to unsuspecting Fannie and Freddie. The banks counter that Fannie and Freddie looked into the originators’ dealings at least as intensively as the banks did: either they found the fraud, and had no business relying on the banks’ offering documents, or they didn’t, which suggests that it didn’t exist.
That’s sort of compelling! I mean, not totally compelling – the GSEs’ private-label and single-family people sat in different places, and presumably at least sometimes looked at different sorts of loans, and there’s always the possibility that the GSE people were dumber than the banks and so didn’t spot fraud that the banks did – but still it’s interesting. Here, though, is my favorite part, from deeper in the weeds of passive-aggressive discovery disputes:
Petitioners served an interrogatory requesting identification of the GSE employees who participated in purchasing the relevant securities. In response, FHFA identified 42 individuals “who may have” participated in some fashion in evaluating or purchasing the more than 500 securities at issue, but refused to identify the individuals who actually read and relied on the offering documents, conducted due diligence, or authorized the purchase of any particular security.
So, I mean, passive-aggressive stonewalling, sure, but don’t you get the sense there’s a deeper meaning here? Like maybe: no one at Fannie or Freddie read any RMBS offering documents at all ever. Their job was to wave in piles of mortgage securities, not to parse through the reps and warranties and determine whether the underwriters’ description of their diligence process gave them sufficient comfort in the credit quality of the underlying loans.
I don’t know that that means much for the case: the securities laws maintain the polite fiction that people read offering documents, if for nothing else to keep the lawyers who write those documents from confronting too directly the meaninglessness of their existence,2 so Fannie and Freddie probably can still sue over misstatements in those documents even though no one at Fannie or Freddie actually read any of them.
Still it’s worth keeping in mind this delightful paper finding that mortgage securitizers bet heavily on housing in their personal lives, disproportionately buying expensive homes at the peak of the bubble. The implication is that everyone involved in that bubble believed in it, even if they were simultaneously doing some shady stuff to prop it up. The FHFA’s suit against the banks is a classic securities fraud case claiming that cynical fraudsters – the banks – deceived innocent victims – Fannie and Freddie. It seems more likely that all of them were deceiving themselves.
1. UBS, JPMorgan, HSBC, Barclays, DB, First Horizon, BofA and Merrill, Citi, GS, CS, Nomura, SocGen, MS, Ally, and RBS.
2. I say with love. Also, to be clear, those lawyers are different from the ones doing the discovery disputes we talked about up above. All sorts of fulfilling career paths.