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That's how the majority of people invest: on what they believe will be true rather than what is true. Goodnight.
The market cap doesn't require knowledge of any settlement. The market cap only requires a valuation of the company. In order to do that, it's rather simple. You look at cash flows, you look at the balance sheet, and you look at the income statement. If you have an accounting background, or knowledge thereof, a few hours studying the numbers produces your market cap based on math and logic.
I wouldn't even entertain the thought of taking such an analysis seriously. The housing market crashed. Not that long ago. Homes are still selling for less than the value they held in 2008. The value of the GSE's are directly impacted by the value of their MBS portfolio which is completely reliant upon the value of each one of those homes they insure. The housing market has declined, not inclined. In order to get from $77b to $379b, it requires an amazing amount of work that has never existed in the last 80 years of the mortgage business; and the keyword an "incline" in value.
Sorry. Huge fail.
Judging by how illogical your past assumptions have been, I can actually see where you'd think that. In the past, Warren has often stated he doesn't even own a computer. Gates just gave him one a few years ago and all he uses it for is to play bridge. A popular video on YouTube of him and Bill Gates recalls the story of Bill giving up on him trying to teach him how to use email. I heard not long ago that he finally learned. Unfortunately, my 81 year old mother still hasn't learned.
I'm always willing to learn. I hope you're right. But the numbers don't add up. You're looking at $379 billion market cap to get to $100 per share. Even if the entire NWS was returned PLUS the original loan by the government, no warrants, no senior preferreds, and no recap requirement, you'd get nowhere close to that number.
It's a math thing.
Good catch!
Which is probably why I never heard of it.
Warren Buffett was a Republican for the majority of his life. His father served as a Republican Congressman in D.C. A fact you probably didn't know. His wife was a staunch Democrat. After you attain a certain lifestyle, you tend to lean more towards the social welfare of society. I'm not saying this is what I support, I'm saying that I've witnessed this personally in my lifetime. He loved his wife very much. If it wasn't for her, he wouldn't have created a charity. She worked at a food bank for many years and was always asking him for money to start a charity for a cause she was interested in, which is why several of his children and grandchildren work at and operate charities. He was no champion of charities up until she passed away. After you live with someone for such a long period of time, you take on many of their qualities. After they pass, you do so to even a greater degree. I believe Warren's support of the Democrat party is much different than you're under the impression.
It's not a prediction. I don't predict stocks. I just calculate math and read the news. It is what it is. Whether you choose to agree or disagree is no concern of mine. I've placed my bet accordingly; on logic. You place yours anyway you choose. I won't fault anyone for doing that.
I will make money, and lots of it, with this investment. But it will be nowhere near $100 per share.
"Just because WB became a billionaire, It does not mean he is right on everything."
Studying him as much as I have, I can assure you he's the last person that would say he's right on everything. I will say though, in how he earned his money which requires him to make judgements about how businesses operate, he has been right more often times than he's been wrong; hence his net worth which is 100% attributed to stock market activity.
"He can say whatever he wants but I put my money on Bill Ackman and Bruce Berkowitz over aging Warren Buffet."
You're free to put your money on whomever you choose. Personally, I put my money on myself because, frankly, my decisions only affect me.
"Wait and see."
I already have. No one besides Warren Buffett has been successful for 60+ years at choosing stocks. That is a bar that won't be surpassed in my, or your, lifetime. I'm quite certain.
Never seen the article before but it makes no sense. Just because he doesn't want to operate as a guarantor in this segment doesn't mean he wants the businesses to fail. It simply means he doesn't want to lose money. He has a fiduciary responsibility (a legal responsibility that is binding) to his shareholders to be risk conscious.
The problem with sites like this is they include too many uneducated people.
I'm certain you're wrong.
Warren never said any such thing.
Billionaire investor Warren Buffett said on Monday the U.S. government's takeover of the two main government-sponsored mortgage finance companies was the right move.
Treasury Secretary Henry Paulson "did exactly the right thing" in deciding that the government should take control of Fannie Mae FNM.N and Freddie Mac FRE.N, Buffett said in an interview with CNBC Television.
"I wouldn't change anything with the plan myself," he added. "It's the best deal and the most sensible deal available now."
Buffett, whose Berkshire Hathaway Inc (BRKa.N) has a multibillion-dollar portfolio of financial and industrial companies, said the mortgage finance companies' giant portfolios of mortgages needed to be shrunk, adding that defaults on those portfolios were the main thing that got Fannie and Freddie into trouble.
But he said the takeover was far from being a panacea for the U.S. housing crisis.
Clearly his goal was to fix the problem, not eliminate the problem. This statement was made in 2008. Buffett held his shares until 2014. He sold, I speculate, for very logical reasons. Probably similar reasons for why I didn't see the possibility of the GSE's trading for anything remotely close to $100 per share, nor even $50 per share. If he felt that GSE's should be wiped, he wouldn't have held shares for 6 more years after making these comments.
Source: http://www.reuters.com/article/us-fannie-freddie-buffett-idUSN0841989120080908
Also, compare a $100b market cap to the $40b market cap pre-conservatorship. That is a 141% growth over a 7 year period (last 10-k 2015). Fannie Mae's revenue stream is at the mercy of how well or poorly the housing market performs. Has the housing market bounced back 141% since the recession? If it hasn't (and it hasn't), is a 141% increase in the value of the firm realistic?
Many questions that need to be asked. It isn't as simple as just taking a peek on yahoo finance and saying "well it used to trade for x, so it should be more now". That employs little logic.
Bonds do not count towards "core capital" rules. They'd increase the debt, the exact opposite of what needs to happen. $20 is on the low end if you believe a $100b valuation is low. Currently, earnings suggests, and has suggested, that $100b is on the high side of the spectrum. Even though the government sweeps their profits, those profits are all accounted for in earnings and taxes are paid on them by the company. So unless you think the market will value the earnings at 15x (which it hasn't since around the 1990's to my recollection), assuming more than $20 per share becomes extremely speculative on an investors part.
The recap will be the primary factor in deciding share price. I believe it could be anywhere from $40b - $90b. If it's the latter, shares will be pennies. I don't believe that's the goal of the Treasury from what I've read but that's the scenario to think about.
Other factors contributing to value are the warrants and the senior preferreds.
Because the preferreds are the ones litigating the case, as well as Trumps economic advisor (John Paulson), it's highly, I'd say beyond highly, doubtful that the preferreds will be forced to take anything less than par for their diligence.
"Did Fannie have a 4% capital surplus?"
We're talking about capital requirement here. You can't measure their core asset surplus to today's production because their capitalization was much different then. Today, you're working with $3b of MBS. Then, it was $1b. Today the shares outstanding is 1.16b without the government dilution. Then, it was 960m. So it doesn't matter what their surplus was then, it's incomparable in today's terms because the model has changed.
Today, the capital requirement is $25b. That's remained the same since pre-conservatorship. One thing that's not disputable, in order to privatize them and make the government backstop go away (which is what the discussion has been since 2008), you have to adequately recap the companies. The current levels are not sustainable. That much is clear.
Correctly translated, its pure speculation. Nobody knows, and can safely know, what the recap will be until they do it. One thing is without question, it will be much higher than $25b.
A 4% recap of the risk-weighted assets equals $60b. The risk weighted assets are $1.5T of their MBS portfolio. 4% of that is $60b.
$60b / $20 per share = 3b shares.
3b shares plus 1.16b existing shares = 4.16b shares
4.16b shares * $20 per share = $83.20b market cap attributable to shareholders.
Preferred shares account for another $20b of value. $83.20b + $20b = a total market cap of $103.20b.
That means, in order for this company to be valued at $103.20b, common shares need to trade for at least $20 per share; which is also what the new stock offering would have to be.
The math is simple. This assumes the government warrants are dismissed.
In order to conclude whether a $100 market cap is sustainable, you look at earnings for a quick and dirty. Earnings have been $11b per year. One person pointed out that they are $11b because the company has retained $3b in earnings by not paying dividends. I argue that the company has paid taxes on earnings they have not received that equal more than $3b, plus the senior preferred dividends go away.
$11 / 1.16b = $9.48 per share. Multiplied by the historic PE Ratio of 10, you arrive at a market cap of $94.80b. So, the possibility exists. However, the share price is incredibly dependent upon how they treat the recap requirement. A ten billion difference in recap produces a much different share price. A $10b difference in market value produces a much different share price.
"Fannie Mae earnings have been inflated by approximately $3 B per year by government eliminating the payment of dividends that were historically delivered to shareholders."
So you think $3b is more than the taxation they've had to pay on earnings they don't receive plus the dividends to the government that will cease? You're right, not even a freshman business school major would make that mistake. 10x earnings is the historical average for the past 15+ years the company has been trading. It's what the market participants have unanimously agreed on, clearly.
Will be another week or two before Mnuchin is allowed to do anything. He needs to be confirmed.
Good points.
In continuation.
In 2015, Fannie Mae produced $11b in net income. Fannie Mae has been very persistent, until the conservatorship, of trading at 10x earnings for a decade. On a non-diluted basis, net income per share was $9.48 per share. At the historical average 10x earnings, that values the entire company at $94.8b. $20b of that valuation is attributed to pfd's, leaving $74.8b to the commons. If a 4% recap occurs (lower than what's been proposed), that translates to a $8 - $10 share price for the commons.
That's based on today's earnings and what the market has historically priced the earnings value. It all depends on how they recap the company and whether warrants will be wiped. Currently, the recap requirement is $25b. Per several dialogues among government, past CFO, proposed legislation, Steven Mnuchin, and numerous articles from reputable people, that will increase significantly. My guess is at least 3% of risk-weighted assets.
That's why I don't use Yahoo. I work from the actual SEC filings of the company. Anything else is unreliable which is why the footnotes to Yahoo, Google, and every other site says "information not guaranteed to be accurate". The SEC is the only place where information is guaranteed to be accurate.
Bottom of page lists the shares outstanding back when the market cap was at its peak ($77b).
If the Government decides the statutory recap will be 4%, they'll need to issue 3.0b new shares at $20 per share in order to give the entire business a $100b valuation. The question of that being feasible is determined by the individidula and how much knowledge he has of the situation. And, this assumes warrants are cancelled.
"the prior high price x 1.2 B shares outstanding is a higher market cap than the number you first reported"
That's because when they were trading at a $77b market cap, they didn't have 1.2b shares outstanding. Outstanding shares change, and sometimes often.
"my point - Fannie without mega capital had a market cap of nearly 100B using 1.2 B shares "
Your point is incorrect.
I think it'll be $10 max.
100% chance of pfd's hitting par.
I calculate $3 as the worst case.
"Settlements for shareholders could be issued annuity for each shareholder awarded. This pertains to a direct award with each shareholder. Not a grouping or company specific. This is strictly for any shareholder payout. Not a recapping solution Answer for how a busted gov could handle settlement shareholder payouts. Gov does this with lottery. That would be back dividends and/ or other damages owe to shareholder."
I've already addressed this the other night. Recap is $75b. The entire annuities market is $230b (had the exact figure the other night, not looking again). The total annuities market is not going to risk 1/3 of their total value to capitalize the GSE's. Has never happened and it won't happen. I guarantee.
"based on earnings of 10 Billion a year that is about 2 bucks a share (5B shares rounded) in earnings on top of 75B in cash - free cash
Why would 2 bucks a share in earnings not come with a 20 buck price"
Think about what you say here. Use logic, and think really hard. Now flip that question around and ask:
If you knew a company was worth $100b, would you pay full value for it? If you answer yes, you've got bigger problems than trying to value this business.
If you think we're going to find that many dummies that would pay $20 for something that is only worth $20 (according to your proposed valuation), you're cray cray Felicia.
Investing is about making a return. If I pay full value, where's my return? Maybe you think a few billion shareholders will enter the market in good faith just to help you attain your $20 per share goal? Your bias, once again, is clouding your logical abilities. You're trying to attain a particular valuation and bending the numbers to meet that objective rather than doing what professionals do which is let the numbers speak for themselves.
"prior high is 1.2 billion shares .... or say 90B"
I really don't know what you're referring to. Can we be date specific rather than using generalized terms such as "prior"? I can't adresss anything you say without knowing what you're SPECIFICALLY talking about. Thanks.
Wow. Smh.
Shares outstanding x price per share = market cap.
Don't know how I made that typo. Haha. Think I'll shut down the computer for tonight.
Because currency holds the value, not paper stock certificates. It doesn't matter if they find one person that purchases one share for $94 billion, the point is they need to raise the $94 billion pre-release. Only the government and GSE's know what their intentions are of how many shares they'll use and at what price the offering will be made. Typically the offering is made at the closing share price of the particular day they choose to do the deal. Impossible to know. What's not impossible to know is how much capital they'll need to raise.
This is very elementary questions you're asking.
Price per share multiplied by total shares outstanding = market capitalization.
That means 969,102,887 outstanding shares (the share count at that time) multiplied by $79.88 = $77.41b
That was the highest market value FNMA reached pre-crash.
The dilution is priced into the recap & pfd's. $94b in total. How many shares that equates to is whatever the government decides is appropriate. The affects is in terms of dollars, not amount of shares.
Using today's price, it would mean an additional 23.9b shares. Have no idea how they'll do it but I know that they need to be recapped, per Mnuchin's statements, and the preferreds need to be satisfied for the court cases to be dropped.
Have no idea what you're talking about. I never said that, unless I made a typo and didn't catch it.
Market cap / shares out = price.
That's a good return. Now I see why we butt heads. I accomplished mine with a maximum of 5 stocks held.
Wait, is that 256% since 2013?
Mine is for one year. Since 2013 it's been closer to 2,000%.
Would love to.
"company prior to TARP had been as high as over 100B in market cap"
No it wasn't. The highest it reached was on February 19th, 2004 when it traded 969,102,887 shares at $79.88 per share. Multiply the two and you get market cap. The answer is $77.41b.
"sorry that combo of earnings power and capital reserves gets me to 20"
You'll get to $20 no matter how many errors I point. You're biased and that's a bad place to be. Good luck. That's what you're currently betting on. It's worth $10 at the most.
"we will not agree"
We don't have to.
"I think the price of private is the RECAP dilution"
Recap proposed is $75b. Either Fannie is either worth $75b or it isn't. There isn't too much guessing beyond critical assumptions to arrive at their fair market value. The difference between the two is what is attributable to shares outstanding. There's 1.16b shares out. I'll let you finish the math on your suggested best case scenario which doesn't pay a dime to the preferreds who are in court (and winning) and you expect them to just walk away. :)
"I do not see those suing now caring about if it was a crime"
Then clearly you don't follow any of the court cases because you're highly mistaken. Mistakes like that will be reflected in your pocketbook, not mine. I suggest you move past the casino mentality and start investigating the investment or be prepared for adverse reaction towards your bank account.
"This is all about money for them"
This is the game of money. It's not a casino.
"A recapped Fannie - say at 75-90Billion via new shares issued at 20-25 dollars a share is a Fannie that could start paying dividends with an announced intent to call in the preferred stock in 5-10 years"
You don't recap a company at $25 per share when you haven't even paid your preferreds their par value which many of them are $25. This is where your inexperience shows. I'm guessing this is one of your first investments, or you're primarily a chartist who's never worked with accounting before.
"Sorry - but we will disagree - as to me the IMMEDIATE buy back of all preferred stock at par is simply not needed to end the suits"
You'll see. :)
Makes no mathematical & financial sense whatsoever. You may as well pick a number out of thin air and risk your money on that guess. I don't invest that way.