Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Absolutely correct in your conclusion. There is no logical rationale that could be asserted to provide for the government to exercise the warrants.
If they were to they'd be receiving in excess of $200Billion of value for $100,000 which is enough in its own right to be tossed in any sane court.
Next, correctly, it would be in similarly in violation of exactly what the judge said in the AIG case the government could not do.
Of course, it would be clearly against public policy and what the government stated as its "reasons" for taking them - note the word taking. Which was collateral for a loan - a loan that has been paid back. Their words not mine.
Takings, yes takings. No one in good conscious in an Arm's length transaction would trade a $100 bill for dime. This would make the case and cause of action ripe.
Fhfa, already exercises control... by many aspects, including receiving 100% of the net worth of the company and "being on the hook for billions in guarantees since they won't allow them to retain capital and managing their affairs by an entity of the federal government. By many accounts, Financial Accounting Standards may already call for them to be consolidated on the books of the us government. Let's look at the substance of the transactions not the alleged intent. Now, some know it all will probably argue against this, but they'd be wrong. Long time ago, we learned substance over form. The form of the transactions or series of transactions, is the intent to deceive and like Structuring, also known as smurfing in banking industry jargon, is the practice of executing financial transactions (such as the making of bank deposits) in a specific pattern calculated to avoid the creation of certain records and reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I (relating to the requirement to file Form 8300). Structuring includes the act of parceling what would otherwise be a large financial transaction into a series of smaller transactions to avoid scrutiny by regulators or law enforcement. Structuring often appears in federal indictments related to money laundering, fraud, and other financial crimes . Yes, there is quite a bit of intent to deceive here; but does it rise to the level of Fraud?
Finally, if they did this it would be $200Billion+ of value to be argued over and over and over. This would spur many new lawsuits, by those that know their company was worth $$. This would delay the outcome for a decade. The government would eventually lose and cost them much.
Trump will want this to be over.
In the end, exercising warrants, doesn't end it.
End it.
1 share = same rights as 1,000,000 shares of common.
I'd suppose someone will file suit if they knowingly exerise the warratns. they are poison.
Its a hot potato.. no one really wants.
I frigure share price at $120 and a divi of around 2.5% So thats around $3 a share. Eventually... not tomorrow - so on 1.1 B oustanding thats $3B or so a year or a pay out ratio of 30% which is not unreasonable.
All changes if they float some shares to recap some but at fair value of $120 or so, to raise 10B that's only 80M shares. That while dilutive is not horrible.
Agree.
We aren't N. Korea where 1/2 deals are deals.
Only way to resolve the lawsuits and those yet to be filed - which are not yet "ripe" will be a negotiated settlement that is agreed to by the government and all the shareholders.
There will have to be a class action settlement that compensates or considers ALL the potential claimants. Otherwise, its 1/2 baked and will not be closure.
Read some where once; probably at a public speaking class in college that lies become truths after two weeks if they are repeated often enough and are not challenged.
As with the current admin; they must have attended the same class as they've repeated their "transparent" nonsense so much that media is buying it.
There is simply too much real money at stake to allow the warrants to survive.
The lawsuits, which will ultimately be won by the shareholders in 10 years then will be worth near $1 Trillion in damages. Its pure greed that would allow them to exist and hopefully the new administration, unlike the current one that is he77 bent on ruining america will act in good faith.
We simply can not have more government gains at taxpayer expense.
Yes,
If you have more than 30,000 shares your annual divi should be enough to amass annual income to keep most people / couples in perpetuity. However, most people would be over-weighted fandf and in order to diversify portfolio risk should consider selling to where at fair value fandf are not 90% of their total.
So, i'd expect some selling and profit taking along the way as people reach their personal goals.
I do expect that the potential for this volcano to erupt 20-30 bucks in a day to be there. That over a 3-4 day period we could easily go from $4 to $10 to $60 to $100 to $125 as news leaks or is announced. There will be quite a few people chasing as this moves higher and fast.
The risk of being out is far greater than the risk of being in. Right now there is probably 33% down side risk and 3,000% upside risk. Which being short f and f could be devastating for those stupid enough to risk it without some real serious backstop or counter party risk tolerance.
Costco pizza is pretty good. Sams Club has a pretty favorable "family" deal of pizza, cheese sticks, cookies and soda for $14 bucks.
Meanwhile, if things go our way... this thing will rocket up to 25-50 a share pretty fast; especially if they cancel the warrants. If they do then anyone's grandma can do the math on what the potential is and that means 5x what ackman / berkowitz wrote 3 years or so ago.
I could easily envision many folks adding an extra comma in their brokerage accounts very quickly!
Thank you.
It just amazes me the lunacy of people thinking that some magic bullet is going to resolve all the issues without addressing and compensating all the issues.
There simply is too much money at stake for shareholders to go quietly into the night without being restored or justly compensated.
The discovery documents and the intent of government if exposed will be very troubling. The only way to avoid that is either to KILL fannie and freddie and go nuclear on their remains or settle.
Too many people involved in the takings and coverup to guarantee hush money is fully paid and people bought off. Trump will change Gov't tune in about two weeks. Lots of pending suits that the best thing will be to stop aggressively defending and if that occurs we'll know the tune has changed.
Fingers x'd
Nice write up - but the warrants will spur additional lawsuits. They will have been exercised and therefore ripe for a takings lawsuit.
Trump admin will want to do away with these lingering issues and only way to make the whole mess go away is to make the warrants go away.
Why can't people understand this very simple concept. They want to believe in the easter bunny and santa clause but pennies from heaven they are not. Its fools gold and going to be a big problem otherwise.
Smart up peeps.
So, for the 35 year old father of two - that works 50 hours a week selling tools or whatever... making 70K a year; going to the ball field three times a week for kids practice, or daughters dance class... its even remotely possible for him to study up enough to understand value investing momentum trading; arbitrage or shorting investements and take his $600 a month or $7K ayear and make 20%? Year in and year out?
Only Barry Madoff could do this..
So, not a realistic proposition.
Too many variables. This is a myth.
GN
Seems we are at a lull.. in the action.
Until February things are going to tread water. We are going to end the year with the Perry appeal still not back, question is will it ever come back?
Or are they waiting obama out? When Trump comes in he can order the justice department to not continue the waiting games and make this end but not filing motion after motion to delay.
This is like us filing a motion to substitute Trump for obama like they tried in the PW and Deloitte cases...
Only, our motion carried.
RN - 20% is just not realistic.
F and F hopefully will be the mother load. But, if its not we still need to pay the rent. So, not putting all my enchiladas in one basket.
In any event - the difference between the 15 and 30 does allow for a larger home and smaller payments.
There is safety in smaller required payements. With the ability to "pre-pay" for no penalty its better to take the longer term and then add principal. If not, if you can make a better return invested - then you could make the argument.
For me i chose the longer initial 30 year term and then have made extra principal while also investing in the market. I'd love to get 20% year after year... its just not a sure thing.
I like sure things when it comes to my home.
20% ? Loan Shark?
Very unrealistic to the average person.
Leverage and financing 30 year amortization periods are but one variable in the equation. It was standard for many many years and only when down payments evaporated to the real big excesses kick in. I am okay with the 30 year option; but the down payments being so low; well that means no skin in the game and that gives you too much house and too little investment.
Fact is home ownership has been the biggest catalyst over the years from a renter nation of landowners (the rich) to the nation of debtors with loans and innovation.
Many people have too much house or the prices because of too low interest rates have caused prices to go beyond possible.
What i don't understand is how people in LA or San Fran or NY can afford any housing on regular income.
A sales rep in California making $70K a year could never afford a 3br 1ba $500,000 home. Not possible; I just don't understand it.
What level of income do you have to have to support a $300K loan? Problem is if you have a job then you are fine, but be unemployed every 4 years for 3 months and its difficult if your numbers are stretched.
Next is this government backstop concept.. well that is just the way it is, but also understand that this is only at the extremes, levels this country has yet to see. Sure the government bloated f and f with 137B dollars. Dollars it never needed because it absorbed its losses from operations and then gave the money back. At the extremes, like nuclear war, back stops will be meaningless, in the meantime, its good to know that a well underwritten portfolio of home loans with solid lending standards across a diversified swath of America has never been a problem for f or f!
For that mythical backstop, the government has been able to use f and f to set policy and inflict its will. That may actually be the greater problem. The concept of "affordable housing" is a big lie to force lenders to lend to people and situations that don't meet muster. They also, give money away to incentives people to do what they wouldn't otherwise do. This is bad policy, its an American way, but caused the problem.
Things in moderation is the answer.
This is a poorly contrived statement"In reality 30 year mortgage enslaves the middle class with home ownership dangling like a carrot on the end of a stick. The government backstop is the problem that blows the bubbles otherwise nothing wrong with FnF business models. That's why politico's can't reform them. They would have to admit they're the problem, LOL! Ironically, the GSE's market share has only bubbled since seized under Gooberment Management so now we have double bubbles, LOL! So it remains to be seen if Trump will pop 1, or 2 bubbles wink "
The 30 year mortgage encourages home ownership and allows people to move more freely around the country by having people able to borrow money and own their homes.
The biggest problem is the concept of down payment or skin in the game. a 3% down purchase is not enough; there should be at least 5% - 8% or so. at 3% down if the buyer has 10K they can buy a 300K home. that may be too much home for an income that can't create more than 3% down.
At say 5% down that same 10K only buys a 200K home. Less home, less nifty things to sell with it (fancy bathrooms, fridges, cabinets, etc.) go away.
That is the effect of the difference in down payments. But, its not the concept of a 30 year loan to blame its the leverage that is the problem.
30 year loans are just fine; as are 4 year car loans. But car loans with 0 down for 7 years is nuts.
The 30 year loan has propelled our economy for 80 years. Growing up all i heard was the 20% down requirement. Well that went away... to 0% liar loans... that is where we got in trouble. A moderate 5-8% down would be palatable. Its the down payments, coupled with low interest rates that created the bubbles.
Not the 30 year loan in itself.
The "release" won't happen over night. It will be a gradual process of relighting f and f. So, using earnings will be a big piece of it.
I'd expect a capital raise, but it will be after the market has welcomed f and f back. Such that the pricing will be attractive and be at a time when dividends can be paid.
I wouldn't expect this to occur in 2017 or 18. Probably mid 2019 would be when this could occur.
Its a process we only need to let it start.
You forget that the government owes back a few billion for what its taken > what it shoved at Fannie.
Next, you miss on retained earnings.
Why would you immediately sell $60B value when in just 3 years if allowed to recap on its own it could have $30B from RE and another $30B returned from the government.
Do that and you manage into a share value far above what you write.
I see this as a process. This process will start slow and gain momentum.
If all you wanted to do was float 100,000,000,000 shares of stock just to be hurtful your scenarios work, but its not practical or realistic.
Slow wins this race.
Well said.
Government is taking from Taxpayers. Taxpayers are investors that pay tax. Not people living off of the government dole. Those aren't taxpayers they are tax takers.
We need fannie back in the business of making America Great not creating a slush fund for people make special deals.
Exactly,
It is the Greed of Government at play here.
Why take 100% when they normally take just 60% or so.
Once the money is taken from the taxpayers it becomes government money it no longer is taxpayer money. My money is taken by government. My money is invested in fannie and freddie. As a taxpayer they are taking my money - the fruits of my investment.
I no longer want taxpayer - meaning ME and people like me from losing because of greed of government. They not only want and are taking taxes from me and fannie and freddie but ALL of it. 100% of the fruits of their efforts and instead of normally just getting 40% ie.. net of the 40% federal tax rate (blended) and then 40% of the 60% that is left (personal income tax) they are taking ALL of it and that is criminal behavior.
That is theft!
So STop it!
Joseph,
If you can go back and read the archived yahoo messge board you'll read my writings on the excess reseves in o9. It was so over the top and i saw it so quickly.
Agree we can not have more taxpayer losses and government gains. Saw this some where. Taxpayers are persons, people, investors. Taxpayers are not government. Government are career politicians and wanna be' economists that cooked the books.
taxpayers are shareholders where government is evil spenders of taxpayers fruits of their labor.
obit,
The bottom line here is this.
Had the Government and its henchmen not gotten "greedy" with the brazen use and theft of Fannie and Freddie, concocting such lies and devious behaviors but instead, nationalized them temporarily, and done so using honesty and truth; we wouldn't be in the position we are in today and the government would have been seen as good stewards.
Instead, they are seen as crooks.
Flooding them with excess cash to buy assets and create liquidity by making up non-cash losses; taking 10% interest on the loans, creating the warrants, and telling a story so brazen and full of lies about fannie and freddie was such a well orchestrated set of lies / almost too good that the msm bought it and touted it.
But it was all a lie.
So they got greedy trying to cover up their tracks.
Its going to blow wide open unless they settle. Darn quick.
With a proper release... f and f could easily top 100.
Just takes the right moves and decisions.
And I am so ready for it.
SO!
100% concur.
Go team!
9.17.2008 Freddie Shares at $0.25 a share.
Some but not nearly enough!
Thank you.
With what has occurred with Wells and the overall distrust this is never going to happen. Warren is smart enough to know when the cause is lost and not dumb enough not to get behind or on board of a winner.
Warren has enough moola to easily acquire 10% of each. He could acquire the 120Million shares in fannie and 70 Million of Freddie and bank his greatest move of all time.
If we get to 10 we are going to 100.
Still hold first block of shares bought in September 2008.
Go fannie mae & Merry Christmas
First off
I can't imagine any "solution" where the warrants are exercised. Why? Well, not just that it would not be fair, but it would be akin to rubbing it in; salting the wound and that's just not what you do to settle a claim.
I'd want the government to give back the money its taken above what it forced upon them; but that would make the government admit its fault. That's going to take a man to make that decision.
This is where it gets sticky - a lot of politicians are going to have to - settle in their minds as far as what is the right thing to do.
I see them raising capital; but to do that with real money they are going to have to get the confidence of the market back. You don't do that by saying 1 for you 2 for me. So, its got to be done fairly.
We need the 30 year mortgage to help the housing business; but we can't have Alt-A loans anymore. And we have to have Government Policy mostly out of the mortgage world. But, this isn't going to happen.
We could easily, allow the markets to ease us back into fair value over time, the government could direct it carefully, so as not to jolt the market. But it has to take steps to do this, including relisting, caneling the warrants and then allowing them to retain capital by at least calling the loan paid back.
I stick by my earlier comment on Yahoo. If we get to 10 we go to 100. Why? because F and F now hold more market share on larger loans and larger asset base. Keep in mind, assets in the market place should double at historical rates every 7 years or so. And 9 years ago fannie was at near $60or$70.
If they exercise the warrants, this case will drag on another 10 years.
The AIG case has already shown that doing so was wrong move. This time it would be with knowing it was wrong and the damages could be very high.
As any good negotiator you don't spit on your opponent and then offer to settle. Not the smartest negotiating ploy and Trump will know that; he is too smart to try and steal the money when he knows the government will get 30%-60% of it back through direct taxation and indirect benefit of the economic gains of the spending it creates.
Yes,
Only I don't figure a PE ratio for that of a high growth tech stock.
So i figure 10-12 ish... max.
Market will determine a price, but not while locked up. Let her run free and then put a price on her.
Seriously?
You have a company that has an EPS of around $10 a share.
That should equate to around $125 share price.
Could be high could be low.
Figure the company would need to raise capital if the government does not return what it has stolen from it.
In the end you have a company whose earnings potential will be far greater than its "book value".
If Fannie needs to issue 2B shares to raise $50B then the BV will be around $6 per share. If it can do 400M to raise same then the BV is $31.
If the warrants are "exercised" the purchase price to be paid to the fannie mae for what would be around 4.2 billion shares is $115,000 give or take a couple of bucks.
This would probably give the shares a value of around $25 each with 5.6Billion outstanding. So the market cap would be around $140B.
In order to create Contributed Capital of around $50Billion they'd need to issue 2 billion shares at around $25 a share.
This would give the market cap of around $190B on around 7.6B shares or around $25 a share.
Thus, today's commoners who own 100% of fannie would now own around 14% of the entity instead of 100% - if warrants are exercised.
If however, warrants are not exercised, then to raise $50Billion they'd need a secondary offering of 400M shares (@$125 a share or 5x the $25). Thus, on a market cap of 190Billion post offering; the current share holders would own around 74% of the entity.
I'd rather own 74% of an entity worth $190Billion than own 14% of the same one.
Hope this clears it up.
Capitalization
People here should take an opportunity to understand how it works, what a secondary offering is, what warrants are, and how preferred stock come into the mix. They also, need to get a grip on dilution, earnings ratios and overall book value.
For example the 'warrants' the government gave themselves create near $0 capitalization if exercised for either f or f. A capital raise if the warrants were exercised where near 6B shares outstanding to raise $50B of real capital would be very dilutive to the existing shareholders.
A raise of $50B if no warrants exercised would be dilutive but would not be horrible to the existing commons. Especially, if the company's were able to reaffirm a market value per share that was determined in the free-market as opposed to one artificially set.
To this end, I'd do a secondary to establish capital in a 18 months - after release, relisting and reclamation of those self dealt warrants. This would be after a massive government settlement of the outstanding litigation and shareholder claims for among other things fraud.
LOL
They'll give watt a chance to work with the new admin and if not they'll exclude him from the conversation and work around him.
Happens all the time in business. It will happen here.
While trump can not "fire" him. watt will either get in line with the program or he will be marginalized. If you can't go through him, they'll just go around him. I've seen this play out so many times in business.
These are silly reasons.
In fact they aren't reasons they'd laughed out of court. If you changed the players and made the stakes similar.
A pe of 40 would be appropriate for a tech stock or an "ubber" growth stock. Check out HD 20 years ago. Check out ULTA recently.
For me, for a bell weather, financial institution type stock a rosey PE would be 14-15. Be conservative and use 13; So i'd adjust my reasonable expectation down to top... maybe $150 based upon eps of $10-12 a share.
For me; anything above $65 would be transformational. I'd call $125 fair value and north of that a whole lot of fun.