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In your extensive bankruptcy practice have you ever seen the USG ( ie SBA - HUD) do anything which would "maximize" the USG return? It has been my experience that the USG entities get noticed up the wazoo but they hardly ever engaged in an efficient matter if at all. Only first secured liens get handled an anything unsecured usually just gets ignored even when there is recoverable cash.
Nothing is easy or efficient when it comes to the USG taking action. There is no risk in not doing anything but the biggest risk when it comes to the USG doing something is that it will take too long and it is most likely going to get screwed up.
Thanks for the reply - we have discussed the common holdings on this blog for a while and most hedge funds and other private managers do not have to report. I doubt if many hedge funds actually own much because they have been burned for a decade now. A PM within a hedge fund would not want to have to justify holding GSE positions internally or to their large investors who may have full transparency into their portfolios. Consultants who help pension plans invest in hedge funds usually demand transparency on a lag basis.
The question is whether there are some large private investors who hold common and are waiting to leverage the position. There may not be any but it is hard to believe that retail took up all of the GFA stakes which were substantial because the stock price did not really break the $ 1 range until after most of the GFA stake was sold. That is why I am wondering if the Lamberth attorney have access to current Nominee holdings because it is likely that GFA only used one Nominee in the Depository System and perhaps another Nominee has increased substantially in holdings. Clearing firms and prime brokers may only be associated with one Nominee .
Exactly Robert - as you pointed out SCOTUS has ruled on this and the question is whether an FHFA action could be challenged under the SCOTUS EPA decision.
If the FHFA tries and Admin action and cramdown now - someone like Pershing Square could go to 5th Circuit and challenge the Admin Action. The political risks is that the Admin Action is stalled and a new Admin comes in. The JB Admin could try this now with a cramdown - could be challenged and delay the consummation of the Utility Model - either DJT or RD win and call the Utility Model work and socialist. Take the 100 to 150 bn from selling 80 pct of the shares by exercising the warrants and call it a victory for free markets and good housing policy.
Crazy to think that the USG can do anything efficiently or timely - especially a cramdown.
Great analysis LuleLeVan - really shows how material the Collins and potentially the Rop case is. It seems consistent with TH's CET1 calculations except he does not include the voiding of the SPS in his assumptions.
If you add the 35 bn of JPS as part of a conversion it significantly shortens the timeline probably by a couple of years.
I just dont understand why the UST would want to take all this execution risk to get greater than 89 % ownership when they can easily monetize the 80 pct with certainty and speed.
Is it fair to say that the CET1 calculation is approximately 20 bn less than the accumulated retained earnings which are appox 92 bn. The accounting number is about 20bn less?
Thanks Robert
If SCOTUS grants cert - then decision likely in May/June of 2024. Collins comes after that and so decision would be earliest in 3Q of 2024 - right before the 2024 Election - possible new President and Head of FHFA in First Quarter 2025.
Hi Robert - here is a sentence from the Bhatti Decision you cited:
'When the FHFA exercises these powers, its actions must be ‘necessary to put the regulated entity in a sound and solvent condition’ and must be ‘appropriate to carry on the business of the regulated entity and preserve and conserve [its] assets and property.'
Doesnt this seem like an Admin action converting the GSEs to the Utility Model could easily be challenged based on this principle?
Seems like another reason to settle with JPS and common shareholders if any Admin action is contemplated?
Thanks NeoSunTzu - no major holders here. Did all those shares get distributed among retail or is there a large holder that does not have to report. The Lamberth class action lawyers would have access to nominee ownership - perhaps changes in nominee holdings also?
Hi Robert, I think you are right to bring the Non Delegation and Major Questions Doctrine up but these issues may not be ripe until the FHFA expands its authority based on a void contractual right that is voidable due to a separation of powers doctrine. For example if it goes ahead with a cramdown as a precursor for an Admin Action to change the structure of the FHFA to a utility model. Perhaps this is how these issues will be litigated? Sort of derivative separation of powers causes of action?
Good Morning No Name!
Who do you think bought the Growth Fund of America stakes in FNMA and FMCC - I think they were 10 to 15% stakes?
Seems like whoever bought these stakes think that the GSE Common is worth at least $ 1?
Thanks LulLeVan,
If the SPS was declared void - how would this affect CET1 Levels?
Thanks Robert - I would love to see the 5th continue on but you are probably right since the USG attorneys will probably have incentive to slow things down and ask for the stay if SCOTUS grants Cert. Seems like this will play out next month?
My bet would be that this case gets pushed to the 2023 Term. Dont you think that if SCOTUS wants to squeeze this case into this Term they would do that also with the grant of Cert?
I am thinking that the 5th is going to push the Separation of Powers issues and let SCOTUS affirm/overrule if SCOTUS wants to.
Regarding Rop - I have to think that there are some who will want to grant Cert - especially Kavanaugh. If the Unitary Power of POTUS is important ( Collins) why wouldn't the Appointment Clause be important. Thapar's dissent in Rop reminds me of Kavanaugh's dissent in the DC Circuit which was ultimately decided in the Selia Decision.
Feb 27th seems like an important near-term date.
Thanks - looks like the 20ths is a Federal Holiday - Presidents Day. Looks like the 27th then - thank you again for the info and thoughts. Really good to have a set of facts regarding outstanding causes of action and a working calendar. Your calendar is extremely useful and a generous contribution to the Board.
Thanks for the link - did not see this. Again we will have an order on the 20th or 27th on Cert for the CFPB case. Really appreciate the info.
Thanks guys - I am looking at the Calendar on SCOTUS Blog and it has a Holiday for the 20th with the next Orders set for the 27th? This is where I am getting the 27th?
Moderators - this is a great summary of the cases causes of action and background for familymangs calendar - maybe post in the highlighted posts?
Hi BigBruce,
I just went to the SCOTUS Blog Website - do you think it is a certainty that they will consider the CFPB on the next conference ? It does not seem like it is relisted by potential consideration?
If the case is considered it looks like we will know about Cert on the 27th?
Hi BigBruce,
I just went to the SCOTUS Blog Website - do you think it is a certainty that they will consider the CFPB on the next conference ? It does not seem like it is relisted by potential consideration?
If the case is considered it looks like we will know about Cert on the 27th?
Thank you BigBruce28 for your insight and information.
I did not know that the CFPB case was on the Calendar for Cert on 2/17. That is news to me and good to know.
I had seen the SCOTUS Blog post about this Term being filled so if Cert is granted in the CFPB case then will not have a decision until 2024 in the earliest - do you agree? Maybe even not until the June 2024 time frame?
Regarding the timing of Collins in the 5th - great insight. If SCOTUS denies Cert to the CFPB case then it would be a big win right ? But unlikely? In any case we will know in the next couple of weeks - this is good to know.
If the SCOTUS grants Cert in the CFPB case - do you think the 5th stays further deliberation in Collins or goes forward?
Can we come to a common understanding about the COFC suits?
It s my understanding that there are still active suits before Judge Sweeney and Judge Davis. All of which are solely derivative claims under Tucker Act and possibly other causes of action as Barron4664 mentioned?
As Familymang stated - many of the suits have been withdrawn because SCOTUS denied Cert to the appeal of the DC 3-0 Decision in Fairholme. The DC Circuit affirmed Judge Sweeney in denying direct causes of action and overruled Judge Sweeney on allowing Derivative claims. At this point all of the cases before Judge Sweeney are likely to be dismissed or withdrawn unless they are allowed to come up with another cause of action allowed by Judge Sweeney. Seems like a low probability.?
Regarding the Kelly suit - it is a derivative action before Judge Davis.
All of these cases seem like low probability and it is not clear how a derivative win will help shareholders since JPS have a fixed preference and it is possible that any judgement could be accrue to the USG under the SPS in any event?
More promising is the suit before Judge Lamberth which was 4-4 in the last trial. While it is not a big damage amount it would be a victory which most likely would change the tenor of the discussion.
Also - Collins seems particularly promising because it could possibly invalidate the SPS. Rop is also promising but will depend on SCOTUS granting Cert. Bhatti seems to follow Collins so how Collins goes Bhatti will most likely follow?
Summary: COFC cases are being dismissed or withdrawn after denial of Cert. It is possible that all of these cases will be dismissed by 6/30/23.
Lamberth is a new trial in July with likely decision by mid August.
Collins is promissing and could invalidate the SPS
Rop - waiting on a Cert Decision - probably by 6/30 or earlier
Bhatti probably gets stayed until Collins is decided by the 5th Circuit.
Collins will be impacted by CFPB Scotus deliberation. If SCOTUS grants Cert the impact of Collins will be decided by the July 2024
Probably all of the litigation will be decided by July 2024 unless Cert is granted on the CFPB Case and/or Rop and the case(s) are remanded.
Bottom line is that there are substantial potential victories for JPS and Common which will most likely be resolved by July 2024.
Thoughts?
Don Layton was an Advisor at the Harvard Center until the end of 2022. One of the JCHS Directors is testifying before the Banking Committee
https://www.jchs.harvard.edu/don-layton
As you know Hamish Hume and his firm are the attorneys for the FMCC common class and the JPS for both GSEs. It seems he has been open to shareholder contact in the past and conceptually is representing all shareholders big and small.
Don Layton also has come up with a proposed change - not just TH.
We will see in the next few months is Cert is granted
Allmost certainly done but we will see what they can come up with - violation of Charter?
Thanks for the reply NeoSunTzu - appreciate the background and thoughtful response. I will follow up later but wanted to thank you for your contribution.
Thanks Familymang! Rop Cert Petition
For some reason I was not able to get the link you provided to work:
Here is the one that worked for me:
https://www.supremecourt.gov/DocketPDF/22/22-730/253802/20230202141801038_2023-02-02%20Michael%20Rop%20et%20al%20Petition%20for%20a%20Writ%20of%20Certiorari%20Final.pdf
That is simply not true. Central to the assumptions in Scenarios 2 & 3 of the CBO Analysis is the conversion of SPS to common with the implicit conclusion that the UST warrants do not have value due to the prospect of a senior to common conversion.
SCOTUS 2022 Term Calendar is Complete. If SCOTUS grants Cert for CFPB it will be in 2023 Term.
https://www.scotusblog.com/2023/01/court-schedules-final-two-argument-sessions-of-2022-23-term/
If SCOTUS denies Cert then 5th Circuit Decision stands and Collins is next. Either way SCOTUS will not decide CFPB appropriations clause case before 5th Circuit decides Collins.
It is possible that Rop Appointments challenge could also be part of 2023 Calendar if Cert is granted or 6th Circuit decision will stand if Cert is denied.
Legal issues look to be settled by fall 2023 except for long shot Kelly case which will probably be dismissed by then.
Bhatti Appeal most likely will be stayed if CFPB Cert granted otherwise 8th Circuit will have to decide to follow 5th or disagree with 5th setting up another Cert possibility for 2023 Calendar, Could this set up for a 2024 Calendar?
Thoughts?
Great points - why didnt the UST squeeze AIG and "maximize" value? I was just focusing on Greenberg's lawsuit and did not focus on the facts?
Hi Familymang
Did the Rop Plaintiffs file their SCOTUS Cert Brief?
Thanks - you are probably right on damages - not sure what the precedent is from AIG because I dont know the details of the final decision but I do know that damages were deminimus. I did not think through the AIG precedent when I first responded.
Nevertheless, the UST would have work to make the underwriters of the new shares comfortable and there could be a set of new litigation which could complicate execution. Also the amount of market impact will of course depend on stock price at the time a cause of action is ripe.
Regarding the remaining issues - you are just speculating and may be right. The GSEs would definitely have minority shareholder protections under State law outside of Conservatorship. It will be up the the BODs and the FHFA to determine a course of action at the time.
You are almost certainly right. If something is to happen with this Admin it will have to start soon. Otherwise we will look to see how the Court decisions may affect shareholder rights that hopefully be resolved in a future Admin. I am assuming 2030.
Thanks Guido - definitely understand.
Good point on Deese - it seems like they are considering Wally Adeyemo and Lael Brainard - Brainard has a lot of experience and has Brookings connections. The key will be the replacement of Cecilla Rouse at the Council of Economic Advisors and the hope is Jared Bernstein. Brainard and Bernstein is the team that TH mentioned.
Understand why people do not like DJT but we would not won anything in the 5th Circuit without his judicial appointees. You might look at the resistance in his own cabinet to moving forward on the GSEs - perhaps it was at the NEC before Kudlow?
Trumps FIrst NEC Director is on the UST Visitors logs on the same day the likes of Parrott and his now partner were visiting the UST during the BO Era.
Personally like him or not - I think the mistake he made was to appoint too many WS guys in his cabinet. The first NEC Director was in senior management during all of the mortgage market meltdown and probably did not have much of an incentive to free the GSEs for a variety of reasons. Remember lots of WS firms reached settlements. Remember Fabolous Fab and the synthetic CDO that was used to short the sub prime market?
Really great analysis NeoSunTzu and Barron4664
This is very thoughtful and I hope you both continue to contribute. I have a lot of experience and thoughts on this dating back to managing and hedge fund of funds portfolio during the mortgage market meltdown starting in 2006 and through the GFC for several years. I took a contrarian position at the time in my personal portfolio and bought FNMAT and GSE common believing the USG would do the right thing back in 2008. Obviously I was wrong then but want to believe that ultimately the right outcome will happen. In retrospect one reason I was wrong because the UST and the NEC had already started the Nationalization playbook in March of 2008 and perhaps many of the short sellers in the financial sector knew this.
I need to focus on other things right now but lets keep the conversation going. It is a worthy cause
Thanks - reasonable perspective. At this point we probably have two years left of litigation which in the best case leave the status of the NWS back in the hands of SCOTUS to reaffirm or be considered void due to separation of powers issues. Also Lamberth could result in a small damage award. Ultimately it will take a SCOTUS for Exit it seems. A ruling in Collins could shake things up but will not cause an Exit by itself best case. Regarding TH - I appreciate his efforts because he has been consistently constructive based on his perspectives.
Dont you think someone will write a book someday about this. Maybe a Movie like - " The First Thing You will Hear will be the sound of the Heads Hitting the Floor". Wonder who they will cast to play GB?
Do you know TH? Seems like a guy who wants to be constructive to me? Takes a lot to file an Amicus Brief with the DC Circuit and SCOTUS? Maybe you know him and have a different opinion?
2030 - 3 POTUS Cycles - 4 lame duck sessions of Congress