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Hi chessmaster315,
Hey, Joseph,
we agree that there are 2 variants of remedy in the Collins case. The only thing we disagree on is the value of the liquidation preference of the SPS in the second remedy, where Mnuchin is allowed to keep the SPS, but in exchange has to return $125 billion to FnF. You say it's about $200B. And I asked if you could verify that figure. Is there a reference or anything else that proves your figure? I'm asking this because I'm sure that your data is wrong. In my last post to you I even explained why this is the case.
I don't suppose you'll find any text passage that supports your $200B. You obviously fell for the JPS holder narrative style. And this happened to you, even though you put so much emphasis on information that you even read court documents. That would raise questions for me personally... not to mention that you apparently didn't understand the content of either of my previous two posts to you. And I hope you don't misunderstand this one: I'm sorry: I just wanna help you.
GLTY
Hello again, JosephS,
I think you didn't understand me as well as RuudG, to whom I also wrote here once before, that Collins' second proposal for remedy, which provides that 116 billion dollars can be returned to FnF, while in return the Secretary of the Treasury would be allowed to keep the SPS, does not result in a value of the SPS equal to the current liquidation preference of $200B, but much less, because FnF were allowed to redeem parts of the liquidation preference.
So once again: Do you have any documents proving this figure, $200B, which you, RuudG, kthomp19 and others often state? I think you all overlooked the fact that parts of the liquidation preference were allowed to clear, and Collins took this into account in his proposal, but you did not.
GLTY
Hi JosephS,
Hi RumplePigSkin,
you're holding up pretty well on board here. I've been meaning to back you up a few times, but I don't have time right now. And obviously, you're doing fine on your own.
GLTY
Hi Guido2,
i think kthomp19 aka Midas79 has given Tim Howard a good talking to. And Tim also makes the mistake to draw the reverse conclusion that Fannie has to reach the critical capital level to be released from conservatorship. Calabria can release the companies whenever and how he wants. Mnuchin should play along, but HERA gives him a free hand on that.
Funny thing is that kthomp19 is looking for confirmation from Howard for his "we do everything simultaneously plan". But Tim says: Slowly, first stop the NWS and delete the liquidation preference of the SPS. If Tim is right, which I assume he is, because I see it the same way, then the commons will go through the roof before anyone can say "convert"...
GLTY
https://howardonmortgagefinance.com/2020/01/16/how-we-got-to-where-we-are/?like_comment=14526&_wpnonce=20491b471e
Midas79
February 6, 2020 at 10:53 am
This will certainly help you in your understanding, kthomp19:
"Fair Value vs Market Value. Fair value of the stock is a subjective term that is calculated using the current financial statements, market position and possible growth value from a set of metrics, whereas the market value is the current share price at which the stock or asset is being traded at."
https://www.wallstreetmojo.com/fair-value-vs-market-value/
And another link to this topic:
https://www.investopedia.com/terms/f/fairmarketvalue.asp
See you later
Hi kthomp19,
as soon as I praise your acumen, it's lost again. In this post alone, you make two conclusions that are hair-raising:
Thanks, obiterdictum, I didn't notice this.
GLTY
Hi navycmdr,
feel free to read Treasury's Warrant Disposition Report:
https://www.treasury.gov/initiatives/financial-stability/reports/Documents/December%202012%20Warrant%20Disposition%20Report.pdf
On Page 7/160 you can find the following:
"The ARRA affected Treasury’s authority to dispose of warrants, as it provided that when an institution repaid, “the Secretary shall liquidate warrants [of such institution]... at the current market price.” The ARRA was subsequently amended in May 2009 through the Helping Families Save Their Homes Act of 2009 (HFSTHA), which provides that the Secretary “may liquidate the warrants” following repayment."
The GSEs are subject to different regulations, but thanks to this report you can underpin the injustice with figures. This might be of interest to one or the other judge in the course of a trial.
GLTY
Hey kthomp19,
common shareholders don't fear short sellers. We just do not like market manipulation - same as Rosner, who writes that
"Relisting the GSEs now would support FHFA's goals of improving the safety and soundness of the GSEs... by... v. reducing the risk of market manipulation;"
on page 1:
https://de.scribd.com/document/444089096/GF-Co-Why-the-GSEs-Should-Relist-Today
Short selling is not evil. Nor is a reverse split. Nor is a conversion of JPS into commons if it takes place at " fair market value" as demanded by Craig Phillips. I know you don't like the word "fair". But in this context it has a clear meaning and the valuation criteria are generally accepted. And that means that a fair market value cannot be determined until the capital requirements and the fate of the SPS are known.
GLTY
Hi kthomp19,
I think Rosner is wrong here: The stock price requirements for NYSE listing are not $4 a share, as he says. According to an official NYSE document the minimum price can even be $2 a share, see Standard 3:
https://www.nyse.com/publicdocs/nyse/listing/NYSE_MKT_Listing_Standards.pdf
Therefore, there is no need for a reverse split.
It would be best if you call the NYSE to clarify this.
GLTY
I've heard that safety maniacs prefer the illiquid series. Hmm.
GLTY
Hi RuudG,
I don't think you understood what I wrote. But it's really quite simple:
If the Collins case ends with Remedy Number 2, that Mnuchin is allowed to keep the SPS, but has to return $135+ billion to FnF, the value of the SPS still outstanding is not $190 billion, as you claim, but only about $140 billion. This is because the companies are allowed to pay back bailouts that resulted solely from being able to pay the quarterly dividend. Got it now?
That's what I call a cheap way to recapitalize by issuing preferred stock. SPS sold for $140 billion, received in total: $135+ billion. SPS converted to non-cumulative and redeemable with a 4-5% dividend, voila.
GLTY
Hi RuudG,
sorry, but your numbers are wrong. Remaining SPS in Collins second remedy would be around 140 billion Dollars, not 190.
Maybe you can read in the SPSPAs what the companies were allowed to buy back from SPS: bailout money needed to pay the 10% dividend was redeemable.
And in Collins, 135 billion dollars was claimed - at the beginning of the suit, I think.
In Collins, the SPS disappears either way. Probably by settlement and without conversion of the JPS, since the common shareholders would not agree to that.
GLTY
No wonder, Golfbum22,
Collins' co-plaintiff is, of course, Hitchkock.
GLTY
Well observed, Doc.007. And don't worry, my potty stays in FNMA.
GLTY
Hi Ace Trader,
You are absolutely right, kthomp19,
there is no law that requires Calabria to declare Conservatorship. It is always at his discretion. HERA grants the director maximum freedom of decision here.
And what's interesting here is that HERA does not specify who or how Conservatorship should end, except that Receivership ends it. And:
"After the end of the 6-year period beginning on the date on which the conservatorship or receivership is terminated by the Director, the Agency may destroy any records of such regulated entity which the Agency, at the discretion of the Agency, determines to be unnecessary..." That's all.
So there is no law that prevents Calabria from releasing Fannie Mae from Conservatorship with a negative core capital of 110 billion dollars. Indeed, Fannie would not have had to be put into Conservatorship in 2008, since an SPSPA would have been possible even without it. But Hank insisted.
Calabria's main duty is to ensure that FnF are "sound and solvent". Whether he needs Conservatorship for this, he decides (alone).
Not many people have noticed that yet. Once again, you have provided a sharp eye. Likewise, your point of view that Calabria could establish a minimum level of capital, which would then be the benchmark for the "critically undercapitalized" threshold.
But your conclusion is rather short-sighted: you say that Calabria will probably introduce a higher minimum capital standard. This raises the critical capital threshold. Due to Calabria's authority over critically undercapitalized companies, the risks for new investors would therefore be increased, which in consequence will lead to a capital raise before the release per consent decree, large enough to reach at least the minimum requirements, so that the companies and therefore the investors would be out of reach of Calabria's authorities.
kthomp19, is the risk for the new investors to raise capital in Conservatorship really lower than outside? Certainly not! There is no reason at all for a capital raise before consent decree when it comes to investor confidence. On the contrary, investors want to see the companies operate outside the clutches of the government before they get into it. There can't really be a second opinion on this, can there? Calabria's authorities are always greater in conservatorship than when he is just the regulator. And please do not forget Mnuchin's influence concerning conservatorship. And the legislators. The companies must get rid of them to build up investor confidence.
GLTY
P.S.: Release and Recap is coming. This is now called Consent Decree. bcde was the first to talk about it.
Hi kthomp19,
good point. But here's how I remember it:
The legislature has laid down minimum capital requirements for FnF. If these are not met, explicit actions are required under HERA. And if the companies have less than half of this minimum, they are considered "critically undercapitalized" and have to be put into conservatorship or receivership.
Accordingly, the definition of "critically undercapitalized" would be the threshold for a release under Consent Decree. In other words, about 11 billion dollars. This is because any actions required below the minimum could be embodied in the Consent Decree. But releasing the companies above the minimum by Consent Decree simply looks much better.
If HERA does not have such a thing, you are probably right that Calabria is not subject to any restrictions in this respect. But I have to go to bed now.
GLTY
Thank you all,
it's nice to be welcome.
@3antar: What would Mnuchin do with the SPS? It' just disturbing. But it's true that Treasury has some options open. That's why I'm glad when the SPS is finally gone. Then also big investors with a lower risk profile can finally get in, provided that the capital rule is out.
GLTA
Hello folks,
tomorrow the Supreme Court will decide whether to take the Collins case. The decision is expected to be announced tomorrow at close of trading.
If the case is accepted, we can look forward to a final ruling by July 1, 2020. This is to be assumed, as it is in line with the Supreme Court's agenda.
Should we win, this would be the greatest possible victory with the greatest possible media attention that we can hope for. However, nobody knows how the Chief Justice will then decide. Personally, I think that we are now holding very good cards. But a defeat would still be possible. That would be fatal - at least in the short term - because Mnuchin would probably meet with considerable political and media resistance if he were to delete the SPS anyway. A dilution of our common shares by a (partial) conversion of the SPS into common shares would be more likely.
Should the Supreme Court not accept the Collins case, theoretically everything would remain the same: District Judge Atlas would have to judge the case. Her judgment would then most likely be reviewed again at the 5th Circuit, where we recently had the En Banc judgment. After this ruling, the party losing the case could then appeal to the Supreme Court again - in one to three years.
But this is only the theory: in practice, it looks like Mnuchin is running out of time. His recap and release plan is at risk. Because in order to release the companies during Trump's term of office, for example by means of a Consent Decree, they must comply with the legally prescribed statutory minimum capital requirements of currently around 22 billion dollars (Fannie alone). The SPS is a problem here, as it has a negative impact of 120 billion dollars (Fannie) and puts Fannie's core capital at minus 110 billion dollars, as long as it continues to exist in this form (cumulatively). It must be deleted or at least converted, otherwise no release is possible.
Mnuchin has written to the Supreme Court, please accept the case. Actually there was no legal recourse available to him. There is no judgement that he has lost and could sue for it. But he pointed out the urgency of a final verdict and the entire prosecution signed.
If the case is not accepted, Mnuchin is still in a dilemma:
What should he do with the SPS, which has been successfully defended by the Justice Department on his behalf before several courts for years? Simply delete it? 190 billion dollars?
Fortunately, En Banc has found - but unfortunately not ruled - that the NWS is not legal, which would finally legitimize a devaluation of the SPS.
(Judge Willett was the driving force. He wrote the majority opinion of En Banc. Trump moved him to this Court few years ago.)
Long story short: Should the Supreme Court not accept the Collins case, one can speculate that Mnuchin will seek a settlement with Collins, Hitchkock and Liotta due to the urgency of the matter, in order to finally get the matter off the table. If the SPS is deleted in the course of a settlement, I will sign immediately. Then Mnuchin is free to keep the 16 billion dollars that we could win in the Supreme Court in addition to the deletion of the SPS.
Just to understand: Mnuchin is represented in court by the Justice Department. His influence is zero. Nevertheless, he somehow managed to get a case that the Justice Department had already won for him to be heard again En Banc. This is because his department, the Treasury Department, wrote to the Fifth Circuit and informed it that, following a ruling in another case, it no longer believed that the FHFA was constitutionally structured. The case should be examined again in this new light. And? The FHFA is now illegally structured by En Banc ruling of the 5th Circuit and even the NWS must now be reviewed by the District Court - with crystal clear guidance and the relevant passages of the HERA Act which do not allow for a second opinion: The NWS is illegal.
Mnuchin can now finally get into this and settle the matter himself. The petition to the Supreme Court, which will be heard tomorrow, completes Mnuchin's approach: He has tried everything to let the courts decide. But now it's time to act...
Either way, things are moving forward. This is how I see it.
Sweeney is also moving forward: the parties in the Fairholme case have until tomorrow to tell Sweeney how they want the trial to proceed. There's still time to appeal her decision, of course. I don't know this deadline. But I have a strong feeling that there won't be a trial here... ...no time.
GLTA
Happy new year, kthomp19,
yes, it would be a very clean slate if we could manage to get the common shareholders who were put into Conservatorship with a Common Shareholder Equity of about $26 billion in 2008 to be let go with only $3 billion, while the JPS holders who came with $19 billion would be let go with $42 billion.
If everyone looks away, it could work. You know, it's just billions...
GLTY
Thank you, Guido2, and a happy new year!
Hi Potty,
there is at least one golden rule at the stock exchange: Every risk must be paid for.
In this respect, the risk of dilution is already priced into the FNMA price. And thus the PPS of FNMA rises more than FNMAS if the risk of capital requirements and SPS conversion is off the table. So I hereby give you in writing that the conversion ratio of FNMA / FNMAS will most probably not remain the same as it is today.
I do not know why comparisons are currently being made with citi. And what you are writing is simply wrong: it was not the Treasury that proposed a conversion of preferred stock into common stock, but citi's Board of Directors.
You can find it here:
https://www.citigroup.com/citi/news/2009/090227a.htm
And here you can see that a Stockholder Vote was necessary to approve this transaction:
https://www.citigroup.com/citi/news/2009/090227a.pdf?ieNocache=630
If you add one and one together now, you will notice that Fannie's Board of Directors cannot propose a conversion until the capital requirements are known and the SPS has been devalued. After all, these are basic requirements for Recap and Release, even under Consent Decree.
If you now think that Mnuchin and Calabria are circumventing the HERA law by prescribing the Capital Restoration Plans themselves in order to give Trump's and Mnuchin's friends Berkowitz and Paulson several billion dollars by a not needed friendly conversion, then you are welcome to stay in the prefs.
Any conversion from JPS to Commons, if it takes place at all, must satisfy the usual Fairness Opinion. This is only possible if the share price is no longer based on speculation but corresponds to reasonable market expectations. Fannie's future needs to be known, including capital requirements and SPS, in order to settle the matter fairly and legally.
Here you can find an example of a Fairness Opinion:
https://www.sec.gov/Archives/edgar/data/1058444/000119312506113868/dex101.htm
GLTY
What's up, Potty?
Heard you're all in prefs now. And I suppose you ain't in England no more either?! Scaredy pants?!
Everybody should do what they want. That's fine. If you feel more comfortable in the prefs, why not?! There, a 100% profit in the coming years is almost certain. Somebody's got to hold the paperwork until they're bought back.
GLTY
Hi robertus,
is this your place? Lovely...
GLTY
Hi Dax1,
I am German. But I know some guys in Patch Barracks and Panzer Kaserne. But most of them are back home or on duty elsewhere.
GLTY
Thank you, MRJ25
Hi chessmaster315,
I think that there will be no settlement if the Supreme Court adopts the Collins case on January 10. If the Supreme Court rejects the case, a settlement will be reached.
Mnuchin has explicitly listed the settlement option in his Housing Finance Reform Plan. And his writ of certiorari to the Supreme Court clearly emphasizes the urgency of an immediate final verdict.
There will definitely be no settlement before January 10. After that, things can move quickly - in Fannie Time...
GLTY
Stuttgart, Germany
Cheers
Hi folks,
I'm already in 2020, and I can tell you this is our year.
Cheers 2020
Hi Lotto65,
no, the man in the red clothes is my neighbor who's mad I put my rocket in his parking lot. But I don't care. I closed the curtains. Monday it starts.
Hopefully I didn't fall for a junk vendor. They wished me good luck and gave me this flight manual:
https://history.nasa.gov/afj/ap12fj/pdf/a12_sa507-flightmanual.pdf
GLTY
Third stage here. I had a window built into the Service Module.
GLTY
Thank you, ano,
good point. If I remember correctly, Judge Lamberth is dealing with the "covenant of good faith and fair dealing".
The "breach of contract claims" are "direct claims", but I don't see any compensation here. Have the "damage claims" not been rejected?
Should it be settled in the Collins case that the Secretary of the Treasury may retain the SPS, as well as the 10% dividend until today, and return approximately $130 billion to FnF, I think it is possible that the plaintiffs may still have a chance to receive compensation for dividends not paid out. That is what I understand by "covenant of good faith and fair dealing".
However, I see the chance of such a compensation as very small, as FnF has never been sufficiently capitalized to pay a dividend since the beginning of the conservatorships. The SPS is an exception as the dividend was a prerequisite for the assistance of the Secretary of the Treasury, as laid down in the SPSPAs.
GLTY
Dear passengers,
we've just crossed the event horizon. From now on there is no turning back. Fully Diluted Black Hole Travelling wishes you a beautiful stay in your new dimension. May the glee be with you!
Here you go, Gordon,
now that your sugar mom runs the ECB do you come to Europe frequently?
We keep on, Lotto65.