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The industry groups do not want the GSEs released without having capital so as to minimize disruption to the mortgage market. That doesn’t mean the PSPA can’t be fully amended and the FnF technical department can begin working over the holidays to formalize a CRP in line with MS and JPM.
But first legal issues must be settled for both commons and jps, which means unless some special proxy has been sent out to vote on a conversion, it’s going to be a while and retained earnings rule the day for the foreseeable future.
Most likely no consent decree but a major amendment to the PSPAs.
JPS are going to wait some time until a specific amount is retained and then 3rd party raise and possible conversion according to sources ... good luck!
Holden, you better convert soon - it’s going to be a long wait ...
With the current structure of the PSPA, among other items like comm fee, Mnuchin has to sign off on a consent order. Cmon, man ... ur on this board all the time and it’s been discussed here several times - plug in ...
Convert to Commons JPS ... it's going to be a long road to raising capital, probably starting with retained only and then, maybe a couple years, they'll look to convert JPS ...
My guess - a major/full PSPA amendment but no consent decree. Some agreement, or something, to prevent consent decree until a certain level of capital is retained to appease the mortgage market disruption audience.
Once the PSPA is essentially fully amended, a CRP can be created that will, by and large, set out the long path to retaining and raising 3rd-party capital.
Interesting times ...
"Don't put all your eggs in 1 JPS basket" either ... as the saying goes ...
And conspicuously missing is Ackman’s interview and $10 for commons in “very, very short order.” Glen relies on less than consistent sources for his articles, one would think Ackman’s interview would play a relatively larger role, but instead is fully omittd to push the JPS agenda ... sad and self-serving ...
Funny ... holding out uope for some kind of conversion sooner rather than what is widely expected to be much later ...
Amelia - JPS are toast and will be left twisiting in the wind - long cap raise via retained earnings - no dividends - 50% of par is all they get.
Fannie, Freddie bounce up on reported recap/release framework
Dec. 16, 2020 By: Liz Kiesche
-- Fannie Mae and Freddie Mac spike up after Fox Business's Charles Gasparino tweets about a Treasury plan to create "a framework for eventual recap and release from conservatorship."
It's "unclear if and when" they would be released.
-- Also, the framework could be implemented through a PSPA (senior preferred stock agreements) or regulation, he said.
-- The bankers said the framework is on Treasury Secretary Steven Mnuchin's desk.
FNMA's stock performance over the past five days:
-- The new developments contrast with comments made by Mnuchin in a Wall Street Journal interview that seemed to imply the path for Freddie and Fannie's release would likely be left to the Biden administration.
-- However, last month it appeared that the FHFA was trying to push ahead with a recap and release plan before the change in administrations.
Lotto - JPS are toast - no conversion and they will be left twisting in the wind for the next 5 years.
Long timeline on recap - JPS gets dinged - Convert now or forever hold your peace!
The cap rule must be posted in the federal register for a supposed 60 day clock to start where within 30 days FnF need to have their capital restoration plan created (e.g., holiday vacation work - possibly) and then the plan is supposed to finalized within 60 days.
How hard are those deadlines? Probably not that hard, but that has been the conversation.
Now that there is a framework being worked on by Wall St that is on Mnuchin's desk, who knows what will happen.
The framework is approved by Mnuchin and is adopted by FnF as the framework for how they to exit conservatorship?
Obviously, we are assuming JPM and MS, along with others, who have put this framework together. Interesting times ...
Guido, I agree but there is always customized numbers, graphs, exhibits, and tables that need to be created.
If only a full PSPA amendment but no consent decree, does the CRP basically go very conservative with retained earnings? If only a PSPA-Lite amendment, does the CRP basically have primary retained earnings and contingencies in the distant future for 3rd party cap raise?
The cap rule now kicks off the clock for a CRP. Is that what is needed by the GSEs for holiday vacation work?
FOF - Mnuchin said consent order between the 30 billion they have today and the 280 billion they need. He did not say before Trump admin being over.
The PSPA full amendment is what we are looking for now. How that relates to the CRP and having the GSE technical department working over the holidays is IMO the dot connecting.
We still won't be released by consent decree, but IMO that is a formality compared to a PSPA full amendment.
Capital Restoration Plan & No GSE Holiday Vacation
Is the Capital Restoration Plan the reason for no GSE holidays? That would fit the question nice, admittedly backing into it.
So a PSPA-Lite amendment wouldn't require the GSE analytic/technique department (whatever it's called) to work over the holidays.
Would a full PSPA amendment (deemed paid & NWS cancelled) require holiday work? Maybe?
the whole may vs shall is about conservatorship run by FHFA, which was a more important issue in the lower courts. Before SCOTUS it was essentially abandoned.
I am not aware of any may vs shall for the PSPAs, and is not the focus of the may vs shall legal issues in the lower courts.
Nats - now that the cap rule will become official, can the 60 days for the CRP be extended out into the future?
One would think that without the PSPA being fully amended (deemed paid and nws cancelled), a capital restoration plan is meaningless.
So a full PSPA amendment would be needed in order to create a capital restoration plan including 3rd-party capital, otherwise it is meaningless.
Either you do the full PSPA amendment now and allow for the cap restoration plan to be put in place (retained & eventually 3rd-party once out of conservatorship), or you don't do a full PSPA amendment and extend the deadline for a cap restoration plan out several months to a year until the full PSPA is resolved, all the while retaining earnings.
Without the full PSPA amendment, you can't, per Mnuchin, raise 3rd-party capital.
On another note, you can't raise 3rd-party capital while in conservatorship either if a CRP were finalized, which would imply a longer capital raise scenario via retained earnings.
Interesting times ...
The ruskies aint no saints ...
Holden, wait ... That was a rare glimpse. You have been touting conversion forever, even your alias has it in the name itself. Now, you don’t even want to be converted? Hmmm
I hope you convert to commons quickly like you basically just said. Tik Tok ...
The market interpreted not being released from conservatorship via a consent order. No one is focusing on the full PSPA amendment.
When are JPS going to be converted now? ACG analytics, of whom you follow, Holden, says a full PSPA amendment and no consent decree is excellent for commons. Care to comment on the very likely scenario ACG predicted being very good for commons?
Navy, here is the full PSPA amendment decoded in that article:
Eternal - full PSPA amendment to “help us on our way” will significantly help us on our way. I wasn’t sure about the consent decree, but I’ve always known about the PSPA needed amendment.
Now that it looks possible commons can have their cake and eat it too, I don’t want a fast consent order. I also like that Calabria’s cap rule may get significantly revised. I haven’t seen it posted in the Federal Register yet so that is fascinating.
Without the PSPA, Yellen is out of the picture and FHFA now can only be a neutered conservator and regular regulator. The gov becomes neutered without the PSPA.
Could be the best scenario for commons ... definitely not good for JPS who’ve been clamoring for huge bang, not just big bang ... maybe, as a cherry on top, Mnuchin will water down the warrants also ... one can but hope ... if that happend - wow!
I bet during the next ACG client call, as long as the PSPA amendment happens (full amendment), ACG will be promoting commons more. A long runway of retained earnings is on the horizon.
I also think a full PSPA amendment gets us the Ackman $10 bucks per share in “very, very, short order.”
Jeddie - if your mostly or all in commons this should be welcome news. There has been a consistent JPS effort to maximize as much of a conversion they can get. The faster conservatorship exit, the higher the dilution, because there most likely would be some capital restructuring outside of just the seniors, plus newly issued common, etc.
A PSPA amendment all but guarantees a measured release, where quarterly profits are retained, and dilutive SPOs are kept at bay, along with JPS conversion until FnF have reached fair market value on the NYSE. Once FnF have a lot more capital then they could be released via a consent order before hitting the statutory capital level of $100 billion for Fannie, or they, I believe, can be fully released at statutory capital levels.
This scenario also allows for fair market value to be attained on the NYSE. The big bang was a fine scenario for commons, but this PSPA amendment with no consent decree is better for commons.
Then they can do an SPO to reach buffer levels, but by that time the cap rule may have been significantly reduced under the guise of affordable housing.
Here is the end of the bloomberg article that Joe Light updated. I’ve been saying this all day (I know it’s annoying), but the below is what ACG says would be huge for commons. I’ll take it!
Guido, as long as the Full PSPA amendment happens, I actually don’t want to exit conservatorship to prevent unnecessary dilution until FnF are comfortably on the NYSE and fair market value has been determined. Then, after several years of sustained earnings to reach statutory capital at $103 billion, they can be released from conservatorship and then continue to raise capital to meet the buffer cap so, per the cap rule, fannie can start paying dividends.
If the full PSPA amendment is imminent- before 1/20 - then JPS has roughly 30 days to convert themselves.
Calabria is gone in the spring. A lower, more reasonable, cap rule could easily.
Bradford should be writing something soon to this effect.
Kthomp, what was the idea of conjuring up narratives to back into desired outcomes. Increasing the liquidation preference does not “help” FnF become responsibly capitalized. Operative word being responsibly.
Has Paulson known all along and has he been playing JPS outsiders?
Kthomp - now you’re dreaming huge! Grasping at straws! No consent decree crushes JPS.
JPS - any of your huddle up or regroup for talking points is pointless if PSPA full amendment happens and no consent decree.
PSPA amendment and no consent decree all but guarantees commons will drastically outperform JPS. Good thing Thompson asked for the full PSPA amendment plus overpayment returned. Still conservatorship and only retained earnings.
I bet the $103 billion of statutory capital needed for fannie will be attained through retained earnings, which equals 5 years at $20 billion a year. If we get $20 billion for fannie then 4 years to get to $103 billion.
Those JPS shares that don’t expire may get some crumbs in 4 years ... maybe some conversion ... JPS Converted will need to be changed to JPS Wind Twisting ... Lamberth you say? Even if you prevailed, appeals, and Lamberth won’t convert you.
JPS did not see that curve ball ... that is a gut punch. Nighty night!
Penn - they will not poison pill - they’ll hurt the only part of the economy that is good. PSPA amendment gives commons a nice, long run way to build capital. All the JPS complaining in the world will also be completely mooted.
JPS better hope that Hackerman article was truly old or wrong. Otherwise, JPS winter is coming!
I honestly don’t care about consent decree. I only care about the PSPA full amendment. That makes release guaranteed as a function of time.
If no consent decree, JPS are toast for a while ... I don't necessarily want a consent decree ... I want the PSPA amendment which I think is the key.
Consent decree helps commons and denies JPS any quick recap, which I'm all for at this point.
The funny thing is they were so sure there was going to be a big bang that they bashed FnF commons and JPS shares after SCOTUS, but now they really could be left out twisting in the wind.
Poetic justice ... haha
I'd be very nervous if I was JPS - no consent decree = no capital restoration plan = no JPS conversion ...
Retained earnings for the foreseeable future with a new FHFA director in the Spring 2021 who will lower the cap rule.
Once PSPA is amended (deemed paid and NWS gone), there is nothing Biden and Yellen can do without shooting themselves in the foot. ACG says one of the best scenarios for commons is PSPA amendment only = many years of retained earnings = long way ... to the top ... if you wanna rock'n'roll ... yeaaaa!
JPS Converted ... uh ... I mean Holden Walker PO'd about hackerman ... funny ...
ACG and Gaby have been more correct than most. For JPS hopes, they better do a consent decree or it could be game over for them ... they will need to manually convert ...
TRCPA - Calabria is gone once SCOTUS rules. Not a bad thing at all if the PSPA is amended. Cap rule could come down considerably for affordable housing.
hhhhhh - Yes, companies in conservatorship can raise capital. It's called retained earnings!
Good luck with your jr preferred shares ... you guys are unbelievable ...
Rick, that is what Gaby from ACG is saying. That is a scenario she says would be "big" for commons.
If we are to view the WSJ article with any credibility, and look at what Joe Light reported after Hackerman (these guys are a piece of work), then per the quote below, a PSPA full amendment (deemed paid and NWS cancelled) without consent decree is a very good scenario for common shareholders as retained earnings is the path for the foreseeable future (3, 4, or 5 years).
If you haven't already I encourage you to view the scenarios Gaby from ACG analytics put out there (33 min to 36 min). It is very instructional on where we are now.
https://www.realvision.com/the-ultimate-election-trade-fannie-and-freddie-live-with-gabriella-heffesse