What about this one :
UPDATE: Fannie-Freddie shareholders may get a payout after a decade of uncertainty
12:49 PM ET 5/23/19 | MarketWatch
Related Quotes
12:51 PM ET 5/23/19
Symbol Last % Chg
FMCC
2.84 0.35%
FNMA
2.93 -1.18%
Real time quote.
UPDATE: Fannie-Freddie shareholders may get a payout after a decade of uncertainty
By Andrea Riquier
New regulator's task: Disentangling the hornet's nest of temporary patches that have propped up the housing finance system for the past decade
Shares of Fannie Mae(FNMA) and Freddie Mac(FMCC) surged Monday after their chief regulator emphasized that the two mortgage enterprises would be allowed to hold their capital instead of sweeping it to the Treasury Department.
But Mark Calabria, who has helmed the Federal Housing Finance Agency since April (http://www.marketwatch.com/story/senate-confirms-mark-calabria-as-head-of-fannie-freddie-regulator-2019-04-04), went a step further. In a public appearance in New York, Calabria affirmed that his agency and the Treasury Department have been discussing ways to allow Fannie and Freddie to raise additional capital.
"It would likely take a very long time to build sufficient capital through retained earnings alone," he said. That's obvious from a quick look at the math -- the two companies made about $25 billion last year. The former FHFA acting director said the two companies could need up to $200 billion in capital (http://www.marketwatch.com/story/as-fannie-freddie-reform-gets-underway-here-are-the-three-big-questions-for-the-housing-market-2019-01-29), and some analysts say that number could stretch even higher.
In a subsequent appearance on CNBC (https://www.cnbc.com/video/2019/05/20/fhfa-chief-wont-wait-for-congress-to-take-frannie-and-freddie-public.html), Calabria mentioned that the companies' common shareholders are part of the discussions now underway, a comment that took many housing finance observers by surprise.
"Existing common shareholders have not been a significant part of the discussion," said Brandon Barford, a partner with Beacon Policy Advisors, a boutique research firm. Before co-founding Beacon, Barford worked alongside Calabria on the Senate Banking Committee at the height of the crisis. "Frankly, there hasn't been a lot of emphasis on the mechanics of how this would work. I'm curious about that and I'm not sure that's all been worked out in FHFA, let alone in negotiations with Treasury."
Calabria's comments on CNBC, on the sidelines of a major industry gathering, were somewhat rushed as he tried to explain the nuances behind the notion of a "public offering" for companies that already have shares outstanding. Holders of common shares "were never wiped out," he said. "Whether we can do some kind of conversion with preferreds, or whether they would get par, it's way too early to figure that out."
As a reminder: the plan that rushed Fannie and Freddie into conservatorship as the financial system melted down in 2008, and subsequent amendments, gave the Treasury Department warrants representing about 80% of each enterprise, payable as "senior preferred shares (https://www.fhfa.gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx).";
There are also outstanding preferred shares, many owned by well-known investors like John Paulson (https://www.valuewalk.com/2019/01/john-paulsons-freddie-and-fannie-trump/), and common shares (Bill Ackman's Pershing Square is one of the biggest single shareholders (https://www.sec.gov/Archives/edgar/data/310522/000119312513443212/d630953dsc13d.htm) of the common stock.)
As MarketWatch has previously reported, there is broad agreement about the basic outlines of what the future housing finance system should look like. But the stickier questions remain: how to disentangle the hornet's nest of temporary patches that have propped up the housing finance system for the past decade in a way that's fair to everyone.
What if Treasury just sold its warrants? That would keep taxpayers whole -- it was the public purse that backstopped Fannie and Freddie during the crisis, so it seems only fair to many observers -- but it wouldn't raise new capital. Conversely, if Treasury were to write off its investment, or gift it back to the companies, it would "be giving up a lot of money that could be paying down the deficit," in Barford's words.
Related:Congress wouldn't do it, so Fannie and Freddie reformed themselves (http://www.marketwatch.com/story/congress-wouldnt-do-it-so-fannie-and-freddie-reformed-themselves-2017-08-03)
What if the two companies issued more stock? That would "dilute" the value of the shares currently outstanding, in market jargon.
Barford described the conundrum thus: "to the extent that there's dilution of current shareholders, that creates controversy. Paying out at par -- well, those enterprises wouldn't have existed if not for the government stepping in."
It's also important to note that anyone with any power over Fannie and Freddie's future must tread lightly when discussing their fates. After MarketWatch reported on internal FHFA discussions on ending the conservatorship in January, a watchdog group suggested insider trading (http://www.marketwatch.com/story/fannie-and-freddie-stock-moves-may-be-insider-trading-watchdog-groups-suggest-2019-02-14) may have been involved.
Yet figuring out what to do is just half the battle. Making it happen -- lining up investment banks, wooing interested investors, explaining the companies' story to capital markets -- is another battle.
Calabria on Monday emphasized multiple times on stage (https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-Mortgage-Bankers-Association-National-Secondary-Market-Conference-Expo-2019.aspx) and on television that the process of figuring out next steps was, in fact, a process -- "not calendar dependent," as he put it.
But nothing in Washington operates independently of the calendar. Barford has an uneasy eye on the 2020 elections. If President Trump does not win re-election, he thinks a Democratic Treasury secretary might fight any efforts to bring more private-sector market participants into the housing finance system.
Also on the minds of many observers: the aging business cycle (http://www.marketwatch.com/story/mortgage-rates-tumble-as-one-economist-waves-the-white-flag-2019-05-02). The next downturn in housing (http://www.marketwatch.com/story/were-probably-at-peak-housing-heres-what-that-means-2018-06-27) won't look like the last one, but it may cause Fannie and Freddie to have losses that complicate the narrative for capital markets. And bearish conditions in financial markets may make a big public offering more difficult.
"Housing's hard," Barford said. "The details are really hard. I think they're going to find so is the financial engineering, especially in this very politically charged environment where there's issues of equity involved."
Related:Fannie-Freddie reform could rewrite a familiar Washington script (http://www.marketwatch.com/story/fannie-freddie-reform-could-rewrite-a-familiar-washington-script-2019-03-25)
-Andrea Riquier; 415-439-6400; AskNewswires@dowjones.com
> Dow Jones Newswires
May 23, 2019 12:49 ET (16:49 GMT)
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