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Except they can't issue that $70 B at today's price because they can't issue any stock until all litigation is settled. It ain't happening
What's the difference between: "Issue a final Enterprise Regulatory Capital Framework" and "Issue a proposed rule on Enterprise Capital Planning" in the #FHFA 2021 Performance Plan - Objective1.3 Responsibly End Conservatorships of the #GSEs$FNMA $FMCC https://t.co/pcFMZUQKp3
— Jarndyce Jarndyce (@JarndyceJ) January 3, 2021
Thanks Kthomp. I assumed you would be the guy to ask (and answer).
So, in your calculations, converting JPS would raise CET1, Tier 1 and Core Capital all by $19.1B, leaving Core capital at $40B. Does that basically mean that the Net Worth would then be $40B?
So, by removing the liability, how does it increase CET1 capital?
If that is the case, the amount of dillution for common would depend on how many shares are created when they convert those JPS (BTW, I also own about 15% JPS/85% CS). For FNMA, if they create 500 million, then we end up with 1.6 billion shares (not accounting for exercising warrants) for about $40B in CET1. If my math is correct, common shares still come out better in that scenario. If they only create 200 million, even better for the commons.
The real danger, it seems to me, is if they exercise warrants against the current $21.4B (probably $26B after Q4) before converting JPS. At that point, Commons are limited to about $5 per share.
Obviously, the longer they wait to exercise warrants or if they negotiate a repurchase of the warrants, it only benefits commons.
You're right, Rumple. This is consistent with what Tim Howard said about all the reporting (https://tinyurl.com/yxz2qlyk). Glen has put an a lot of trust in these speculative reports. Tim Howard does not. I fall more on the Tim Howard side. I think what Gasparino is reporting is nothing more than some behind the scenes lobbying by bankers in light of the imminent PSPA amendment. It is essentially what Tim Howard said:
"I don’t read anything into it, other than that people who either want or don’t want a deal on the net worth sweep to be struck before the inauguration are working their press contacts to try to create pressure for their desired outcome"
I tend to think it was the same bankers (ABA and MBA) who sent a letter to Mnuchin (and probably Calabria) with their Christmas wish list for the GSE recap and release.
https://narfocus.com/billdatabase/clientfiles/172/3/4198.pdf
In the article, Amy Howe basically outlines that SCOTUS is likely to grant prospective relief, permanently ending the NWS. But they don't appear to have the appetite for backward relief through this case. However, a prospective win in this case will provide the groundwork for the Fairholme "takings" claim. Therefore, I expect the backward relief to come, just not directly through Collins
Good post Nats
Maybe the only other important date would be 12/18, the recess of Congress. That recess should reduce the political noise that Mnuchin might have to deal with. Hopefully the won't get dragged before a congressional hearing in the new Congress after 1/4
If the BOD has no fiduciary responsibility to share holders, they will NEVER attract new investors
I agree with you, but I'm just trying to understand Metzler's comment
I agree there will be a conversion (I own FNMAS, by the way), I just disagree with you on the timing. I expect the conversion to come in late 2021.
Quote: "I’m assuming Metzner’s supposition is that the warrants will be auctioned off/sold at fair market value to raise capital for the GSEs."
In order for the proceeds of such a sale to go to recapping the GSEs instead to the Treasury, wouldn't Treasury have to sell the warrants back to the GSEs for a nominal price? Then the GSEs could turn around and sell those warrants, correct?
Nor did we say that they "endorse a retained earnings-only path." You're reaching with these straw man arguments
Quote: "Retained earnings is what FnF asked for in their cap rule commentary. The same FnF who will be responsible for raising capital, which means this is going to be a long path"
That is a documented fact
I also took note of the 2025 timeframe
Quote: "No bonuses or legacy JPS dividends for a while"
You might be right, we'll have to wait and see the battle for the CRPs go
Here come the hikes G-fee's
There might have been a lot that has taken place behind the scenes, but it certainly appeared as of 8/30 (when the GSE's presented the comment letters) that there had not been any interaction behind the scenes.
Like everyone else, I cannot know what will happen. I know there are a number of things that need to take place before they can be released (PSPA, Cap Rule, CRP, settle lawsuits, consent decrees, NYSE relist), so I'm trying to figure out what hard deadlines FHFA faces in trying to accomplish all of those things. Inauguration day is probably the most fixed deadline, since Mnuchin will be gone. I see the SCOTUS oral argument as a more soft deadline.
It is a catch 22, because leaving the PSPA in place makes it impossible to come up with a CRP. In order to raise capital, you need to know what you are offering to the new investors, and the PSPA prevents the Financial Advisors from knowing that info.
While I disagree (I think there will likely be a SCOTUS win, with limited backwards relief that does not include eliminating the SPS), I think it will take 18-24 months to play out. The leverage with SCOTUS is that it will forever prevent the GSE's from raising capital as long as Collins and the other lawsuits remain out there. It creates too much overhang for new investors who are being asked to put in record amounts of capital. This is basically the position of ROLG, and it makes the most sense to me.
The "30 day" window is my understanding of the provisions in HERA.
Under: 12 U.S. Code §?4513b. Prudential management and operations standards
(b)Failure to meet standards
(1)Plan requirement
(C)Deadlines for submission and review
The Director shall by regulation establish deadlines that—
(i)provide the regulated entities with reasonable time to submit plans required under subparagraph (A), and generally require a regulated entity to submit a plan not later than 30 days after the Director determines that the entity fails to meet any standard established under subsection (a); and
(ii)require the Director to act on plans expeditiously, and generally not later than 30 days after the plan is submitted.
https://www.law.cornell.edu/uscode/text/12/4513b
My understanding is that once the Capital Rule is finalized and adopted, the GSE's will immediately be classified as undercapitalized, and this will trigger a notification of "Failure to meet standards," which will lead to the overall 60 day (30 days + 30 days) process outlined above. Recently, Holden has suggested that as long as the PSPA is in place, the Treasury line of credit will prevents the GSE's from ever being formally classified as undercapitalized and failing to meet the standard. So, I guess that in order for this 60 day clock to start, you first need a 4th amendment, then a publishing of the Capital Rule, then the 60 days.
In order for the 60 days to all take place before inauguration, this process would have to start by 11/20 (This Friday). If FHFA sees the terminus ad quem as the SCOTUS ruling against them (after which Calabria would be removable by POTUS), and not the inauguration day, then they may gamble on a 60 day window before the end of March, which basically means they could wait until inauguration in order to start this 60 day clock (because they need to start it before Mnuchin leaves office).
Does all of that make sense?
Seila Law was argued March 3, 2020 Decided June 29, 2020. Just under 4 months. I expect a Collins decision in late as March
More Retained Earnings!!!
Quote: Mnuchin working for his greedy buddies
Most of Mnuchins greedy buddies own GSE stock. If he wants a cushy job upon his exit from Treasury, I assume he will get the 4th amendment done. But he also wants to do it in such a way that he is not hauled back in front of Congressional committees and accused of bribery or something. I can understand the slow cautious approach. But they will get this done.
Also, maybe the delay relates to a settlement that is at work behind the scenes.
Great post
Quote: "Which means the GSEs need to raise $33B less capital to meet the CET-1 requirements."
You guys are back to discussing sequence and timing. I'm talking about total capitol. I believe, with most, that the GSEs will be given up to 5 years to raise that capital buffers. I believe, as the GSE comment letters both say, that higher G-fees will be instituted, leading to higher earnings
Wait, if JPS conversion is already baked in, then what is the advantage of converting them?
Also, are you suggesting that 100% of the capital, including all buffers, must be completely raised in a 24 month period?
(C)Deadlines for submission and reviewThe Director shall by regulation establish deadlines that—
(i)provide the regulated entities with reasonable time to submit plans required under subparagraph (A), and generally require a regulated entity to submit a plan not later than 30 days after the Director determines that the entity fails to meet any standard established under subsection (a); and
(ii)require the Director to act on plans expeditiously, and generally not later than 30 days after the plan is submitted.
https://www.law.cornell.edu/uscode/text/12/4513b
Capital Rule triggers a 30 day clock for FnF to submit CRP's. Those CRP's can't be done unless the is a PSPA amendment first. So if anything, I would expect a PSPA amendment first, probably in the next 7 days
FnF will have $45B at the end of Q4 2020. They can make $80B more in retained earnings. How much will JPS conversion provide? $25B?
So new equity will provide around 2/5
Quote: What price do you think new investors will want at the time of the re-IPO, and how do you think it will get there? My answers are "$30" and "reverse split".
The answer to your first question contravenes the second. The reason they will pay $30 is because of the p/e, and the p/e is the reason that commons will trade up to $30
Wait for it.... And there it is. A reverse split reference
Quote: "A reverse split gets the commons to a relisting price"
I'm glad you acknowledge the inherent risk of lawsuits of FHFA attempted such a thing
Clearing the Deck for Calabria clones to lead them under consent decree.
I wouldn't be surprised to see Frater and Celeste Brown out the door at Fannie
Absolutely Right
Quote: The capital rule finalization is a definite activity within the next 10 days. Without an idea on the final settlements or the senior preferred shares etc the GSEs cannot submit an opinion on how they will raise the funding upon capital rule finalization. So it is very key to hash out all those details before GSEs come back with the approach of how they are going to raise the money..
Wait for it
More flawed logic