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Sweeney has judged
What's the point?
Judge Sweeney should examine whether the lawsuits against the US are dismissed in the Court of Federal Claims or whether they go to a trial - it's about the NWS, of course, but also about the Conservatorships in broad terms.
Sweeney's ruling: The case goes to trial.
https://investorshub.advfn.com/uimage/uploads/2019/12/6/kslseSweeney_docket_447.JPG
We have another victory in court. However, once again only partially and "under seal". Sweeney' s reasoning is "under seal" considering documents which are kept secret from the public but are subject of court proceedings. We do not know why the judge made such a decision, i.e. which arguments of the plaintiffs were accepted and which arguments of the defense were refuted. But we know one thing nevertheless:
The subject of the forthcoming trial will be the "derivative claims". The "direct claims" were rejected by Sweeney.
This means that no compensation will be awarded to the shareholders. Under Sweeney, for example, there will be no compensation for missing dividends. This is very good for us common shareholders, as the negotiating position of the preferred shareholders is now weakened in the event of a possible court settlement. It is now unlikely that their preferred shares will be converted into common shares at the expense of the common shareholders, taking into account any dividend payments that have not been made.
We common stockholders do not seek compensation for dividends missed or other matters. We want Fannie to get back the money it paid to the Treasury over and above the original 10% dividend agreement. And if the court judges that even the 10% dividend was inappropriate, it's even better not to say perfect!
All this is now possible. Because that is what derivative claims are all about.
Of course, we don't know our chances because Sweeney's reasoning is unknown. But the fact that she is taking the government to trial speaks volumes.
Things can all go very quickly now - but they don't have to. I suspect that Mnuchin is still waiting for the Supreme Court's response. 12/13? If it accepts the case, Mnuchin will hold still. If not, a settlement with the plaintiffs is getting closer. The SPS could then be deleted here. Because that is what the plaintiffs demand. And we too! (And Mnuchin as well!)
Do not forget: Mnuchin has addressed all these options in his reform plan. And Trump has blessed them...
Sweeney is back! The "mob" will be put on trial. It took her one week to reach a decision. Not 7 months, like the 5th circuit... Hallelujah!
GLTA
Hi brooge,
Sell Freddie to Europe!
Fully privatized GSEs could also serve these markets.
GLTY
You're welcome, kthomp19,
"This is a great point, and one I hadn't considered before. If Calabria does include authorities for him (and him alone) to determine the form and amount of all capital raises while FnF are operating under the consent decree, regardless of capital classification by HERA, then fiduciary duties won't matter for any capital raise at all. Thanks for bringing this possibility up."
Now you might have a nice argument for your line of reasoning. But in the end it won't be worth a dime, because all indications are that Mnuchin and Cat Calabria don't want to be associated with the Recap - all the consultants, capital restoration plan, etc.
"No, it is you who is incorrect this time."
Nope.
And this is also just wrong:
"The statutory minimum that Josh Rosner and others refer to has nothing to do with the minimum capital level that Calabria will set when it comes to FnF's capital classification. Nothing at all!"
You provided the explanation for your mistake yourself with your quote. You just have to read it carefully:
Incorrect. Once GSEs get above “critically undercapitalized” at (combined ~$23b) the #FHFA’s discretionary authority for receivership goes away. I expect about the time they reach statutory minimum capital (~$45b) they would likely be released & operate under a consent decree.
— joshua rosner (@JoshRosner) November 15, 2019
Hi kthomp19,
you are right that potentially "Calabria is the one who will determine the form and amount of any capital raise" as long as Fannie is classified as significantly undercapitalized.
And I think that you agree with me that Clabria's power fades as soon as this limit is crossed: Fannie no longer significantly undercapitalized means that Calabria has no influence on the form of capital - unless he grants himself this right per consent decree.
In this respect, the Board of Directors would again have a fiduciary duty towards its shareholders, should Fannie be free again.
But unfortunately, you didn't understand what "significantly undercapitalized" means here. It is not the regulatory capital requirements that Calabria sets. Rather, it refers to the legal capital requirements "...established for the enterprise under section 4612 of this title."
https://www.law.cornell.edu/uscode/text/12/4614
Calabria does not have the authority to change the legal capital requirements. Only Congress can do this. And there is no doubt that the legal requirements are at issue. This is because they have been explicitly referred to under "(1) ADEQUATELY CAPITALIZED" and logically also apply to the lower requirements.
These are:
(a) Enterprises For purposes of this subchapter, the minimum capital level for each enterprise shall be the sum of—
(1) 2.50 percent of the aggregate on-balance sheet assets of the enterprise, as determined in accordance with generally accepted accounting principles;
(2) 0.45 percent of the unpaid principal balance of outstanding mortgage-backed securities and substantially equivalent instruments issued or guaranteed by the enterprise that are not included in paragraph (1); and
(3) 0.45 percent of other off-balance sheet obligations of the enterprise not included in paragraph (2) (excluding commitments in excess of 50 percent of the average dollar amount of the commitments outstanding each quarter over the preceding 4 quarters), except that the Director shall adjust such percentage to reflect differences in the credit risk of such obligations in relation to the instruments included in paragraph (2).
https://www.law.cornell.edu/uscode/text/12/4612
Josh Rosner recently wrote on Twitter that the $45 billion in capital buffers is pretty much enough to cross the "significantly undercapitalized" threshold. That would have to be recalculated.
GLTY
Hi brooge,
I had to take my habitual hibernation earlier than usual. A hot Fannie season is coming.
GLTY
This post can be understood either ironically, sarcastically, or cynically. But I just think it's funny...
...to see Calabria doing his job. Long since 2012, the best time is now. Don't get mad! Doctor Cat Calabria doesn't drive the share price. But the big money does.
GLTA
The Calabria Song:
Time is on my side, yes it is
Time is on my side, yes it is
Now you always say
That you want to be free
But you'll come running back
You'll come running back
You'll come running back to me
Please don't forget: we common shareholders have all time in the world: Recap has already begun. And consent decree makes Release unstoppable.
Have we won yet? Almost!
GLTA
exercised
GLTY
Hi jcromeenes,
"That's scary. In short, why would they need to settle the lawsuits at all when they can simply wipe everyone out and start a new company. Any real assets go with the new company so when we do win the lawsuits there's nothing left to split. Sounds pretty scary to me."
If you read this post from me, the facts certainly don't seem so scary anymore.
GLTY
Hi RickNagra,
"This analysis is too simple. Can you make it more detailed ? Perhaps more numbers ?"
What details do you think are missing?
GLTY
Hi Rickie foo,
"Thanks FD. Will there be a favourable scenario where if one holds the shares over a longer time horizon that these shares can appreciate? I asked this question seeing that FnF revenue and income are generally stable, predictable with little known upside."
This depends strongly on the restrictions that Calabria imposes on Fannie through regulations.
There are companies that focus on growth, such as amazon and uber, as well as those that focus on dividends. Here you can also achieve growth by yourself reinvesting the dividends.
Fannie's Charter sets out a clear mission. Growth is hardly an option within these areas.
GLTY
Hi Potty,
" FD, has’t Calabria said every week for 4 weeks that in 1-2 weeks he would say whether rule is reproposed?"
I think Calabria's comments are consistent:
"$5 by Friday!"
Hi jcromeenes,
"...nobody would want to purchase shares in the IPO with the VAST liabilities the lawsuits would entail from said Receivership. Hypothetically, if they wanted to put us in Receivership that would delay any IPO for 5-10 years, at a minimum, while the cases worked their way through the courts."
Receivership is also still under discussion because it makes it possible to keep all lawsuits away from the new companies. No claims can be made against the new companies. HERA is crystal clear about this. But I'm not looking for the text passage now and hope you trust me.
Mnuchin's Housing Reform Plan says the following:
"- Placing the GSE in receivership, to the extent permitted by law, to facilitate a restructuring of the capital structure."
page 29 of 53
Receivership would also allow Mnuchin to get rid of the SPS. This is the main reason why receivership is mentioned in the plan.
GLTY
Source:
https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf
Here you go, make it or break it,
the post of that time was not meant to calculate the exact PPS, but to show ways how to take into account the level of capital requirements, a possible footprint reduction and the JPS.
GLTY
Hi make it or break it,
"FYI, i have been trying to look at how the fnma company ownership will end up, for instance, ...
can you elaborate on this line of thinking and maybe guess at what you think the outcome will be ??? thanks !"
I've already done that in one of my first posts on this board. Here again my post from January:
Hi Donotunderstand,
I'll go over my calculation again in detail:
To determine the company value, one usually looks at the profits and multiplies the annual profit by the P/E ratio.
Fannie Mae's last annual profit was 13.2 billion dollars.
I chose 15.15 as the P/E, which gives Fannie a value of 200 billion dollars. Here you can see that the average P/E in the same industry in January 2018 was 22.2. So my calculation with a P/E of 15.15 is rather low and the value of the company would be higher if I had chosen 22.2, namely 293 billion dollars:
https://www.investopedia.com/ask/answers/051415/what-average-pricetoearnings-ratio-insurance-sector.asp
In any case, Fannie Mae is worth 200 billion dollars if she is recapitalized and the expected profits remain the same.
The second number of my calculation concerns the capital requirements that Fannie must meet in order to be recapitalized. I have chosen 110 billion dollars because the FHFA's proposal results in this value.
In order to calculate Fannie's PPS, you need to know how many shares there are. That's 1,158 billion shares. If the government exercises its warrant on 79.9% of the outstanding shares, then the Treasury will hold 4.6 billion shares. Together that makes 5.76 billion shares.
These 1,158 billion shares thus own a company with a value of at least 200 billion dollars.
PPS = 200 / 1,158 = $172.71
If the warrant is exercised:
PPS = 200 / 5.76 = $34.72
However, these numbers do not reflect the fact that Fannie still needs $110 billion to reach the company value with which we calcuate.
Therefore, this sum is subtracted from the value of the company before calculating the PPS.
200 - 110 = 90 billion dollars
PPS = 90 / 1,158 = $77.72
If the warrant is exercised:
PPS = 90 / 5.76 = $15.63
In addition, there is JPS worth 19.1 billion dollars. This figure must also be deducted from the company value to determine the correct value of the common shares:
90 - 19.1 = 70.9 billion dollars
This is the combined value of all common shares reflecting JPS and capital requirements.
PPS = 70.9 / 1,158 = $61.23
If the warrant is exercised:
PPS = 70.9 / 5.76 = $12.31
If the capital restoration plan provides for a two-year period, the capital requirement of $110 billion is reduced by the retained earnings of these two years. 2 x 13.2 = 26.4B
110 - 26.4 = 83.6
In this case only 83.6 billion dollars have to be raised by issuing new shares. But what price should these shares have when they are issued? Do you do that the way you want?
No! The value of the shares for the capital raise can be calculated exactly:
We have already determined a comparatively low company value of 200 billion dollars. And the remaining capital requirements of 83.6 billion dollars for Fannie Mae. We also consider the JPS worth 19.1 billion dollars. The value per common share can be calculated from this:
200 - 83.6 - 19.1 = 97.3
All outstanding shares have a value of 97.3 billion dollars.
PPS = 97.3 / 1.158 = $84.02
If the warrant is exercised:
PPS = 97.3 / 5.76 = $16.89
$16.89 is both the PPS and the issue price of the new shares in a capital raise.
How many shares must be issued to meet the $83.6 billion capital requirement?
83.6B / 16.89 = 4.95B new shares
Thus, in this example 4.95B + 5.76 = 10.71B shares would exist including the exercised warrant. Value per share: $16.89
All shares would have the following value:
10.71B x $16.89 = $180.9
If you now add the value of the JPS in the amount of 19.1 billion dollars, you get exactly the initial value of the company as I calculated it before:
$180.9B + $19.1B = $200B
It's easy to see that the bill is paying off. Our shares would have a value of $16.89 taking into account the JPS and the warrant exercised. Also included are earnings for the next two years. This is how Trump could implement it during his term in office.
If Calabria were to reduce Fannie Mae's footprint by 20%, the value of our shares would fall by almost the same percentage. The same for 30%, and so on. This is because the capital requirements would also be lower.
A capital raise is connected with expenses. This could reduce the PPS by about 5%.
This example shows that in principle it is hardly worth mentioning whether one converts the JPS into common shares at the SPO price of $16.89 or not.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=146071148
GLTY
Hi Commons_Cancelled,
"I thought the $FNMA Warrants were illegal."
Well, okay.
"Didn't one poster even have a Letter from the SEC stating they are 100% illegal and can't be exercised?"
Cats, cats, cats everywhere!
GLTY
Hi robertus,
I have a long position that I won't touch. And sometimes I also have a gambler position. I never short stocks.
"How can you as European believe that socialist ideas about GSEs belong to taxpayers will not win?"
I opened my eyes.
"Do you still believe in the rule of law in USA?"
#Faniegate has done lasting damage to the rule of law. But everyone looks away.
GLTY
You're very welcome, Lotto65.
Hello, everybody,
I think that Calabria will announce next week whether or not he will adopt the main features of the Capital Rule proposed by Watt. Should Calabria's capital requirements not be based on Watt's proposal, another public discussion round would be necessary. Calabria certainly wants to avoid this. We will know soon.
We could live well with Watt's proposal. The capital requirements would be high, but not excessive.
The level of capital requirements entails a high risk for us common shareholders. If these, as Calabria brought into play before his term in office, total $250 billion for FnF, there would not be much left for us after a likely capital raise.
But for various reasons this is unrealistic. So Calabria rowed back. Some time ago he said in this context that things usually look different from the inside than from the outside.
No one wants capital requirements that are too high:
- Democrats see this as a threat to affordable housing.
- Investors for the recap would stay away because the ROE would be too small. For the more equity(capital) is needed to achieve a certain profit, the more uneconomical the company is. And what is Calabria doing right now? He wants to set the G-Fees in such a way that the ROE is appropriate and the companies can operate economically. Well, I see.
- The entire housing market would become more expensive. Home loans would be more expensive etc.
- Even the big banks, i.e. our long-term opponents, would fear overcapitalized FnF: Phew, too much free money...
The level of capital requirements is of elementary importance to us common shareholders because of the inherent risk. Only the SPS is more important. If Watt's proposal prevails, there will still be PPS $20+ in it. If Calabria announces that he will change Watt's proposal only slightly, that would be top news.
Last week Calabria said he expects to announce in the next two weeks whether he will build on Watt's proposal or not.
GLTA
Hi Embers,
you're right: the warrant blocks an issue of common stock. It must either be cancelled or exercised before new common shares can be sold.
This is what Mnuchin wrote about in his Housing Finance Reform Plan:
"Issuing shares of common or preferred stock, and perhaps also convertible debt or other loss-absorbing instruments, through private or public offerings, perhaps in connection with the exercise of Treasury’s warrants for 79.9% of the GSE’s common stock;"
page 29 of 53
You have recognized the problem correctly: As long as the warrant is not exercised or eliminated, all shareholders, including new investors, can own a maximum of 20.1% of the company. For example, if you want to sell common stock for $100 billion, the company must be worth at least $500 billion. But currently it is not.
Unfortunately, the warrant poses a danger to us common shareholders because it can be exercised at any time. Theoretically, Mnuchin can get us down with the warrant. Practically I exclude that.
SPS, warrant and the level of capital requirements are our final major risks. Once these uncertainties have been resolved in our favour, the PPS will be at a completely new level.
GLTY
Source:
https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf
Thank you Letgoofmyfannie,
my favorite song is back. Great. My greetings to the bum under the P. bridge.
And GLTY
Hi obiterdictum,
Hi Guido2,
I gotta tell you, kthomp19,
the more you let obit wrestle you, the more sympathetic you become to me.
GLTY
came down to about 135B. See "conservatorship capital" in Fannies reports. Freddie calls it different. I just forgot.
GLTY
Topic: Capital Restoration
Hello, folks,
as you have probably already heard, both the FHFA and Treasury, as well as Fannie and Freddie, will consult an advisor to help them with Recap and Release. But what's all this about? Is this another money waster?
Well, there are reasons for that:
According to HERA, the companies themselves must develop a capital restoration plan and present it to the director of the FHFA. The latter then approves it or gives it back to the companies for revision.
"A regulated entity that is classified as significantly undercapitalized shall, within the time period under section 4622(b) and (d) of this title, submit to the Director a capital restoration plan that complies with section 4622 of this title and carry out the plan after approval."...
"The Director shall review each capital restoration plan submitted under this section and, not later than 30 days after submission of the plan, approve or disapprove the plan."...
"If the Director disapproves the initial capital restoration plan submitted by the regulated entity, the regulated entity shall submit an amended plan acceptable to the Director within 30 days or such longer period that the Director determines is in the public interest."
There is no doubt that FnF are legally obliged to draw up their own Capital Restoration Plans. And in view of these fundamental decisions, it is just reasonable that the two companies call on external advisors for help. They should then be involved both in drawing up the plans and in their implementation.
But why does Treasury need an external advisor?
That's because Craig Phillips is gone. He was the only one there who could do the right calculations. No, joking aside:
Although the FHFA was founded as an independent agency, the Treasury has given itself a say through the SPSPA. In addition to the factors "sound and solvent", the Treasury is mainly concerned with protecting and compensating the taxpayer. Therefore I suspect that it will be the task of the advisor not to develop the Capital Restoration Plan, but rather to show ways and solutions regarding warrants, SPS and a fee-based explicit guarantee. These and other findings not mentioned here could then be passed on to the FnF advisors as a prerequisite.
And given the many advisors, it's not surprising that Calabria wants his own one. Finally, he is solely responsible for the two companies in conservatorship. He absolutely needs a contact person who will be able to give him an idea of the outcome. Calabria must be able to independently evaluate the Capital Restoration Plans and assess Mnuchin's proposals.
The recapitalization can take place within or outside conservatorship - per consent decree. Within conservatorship, in view of the many open questions and conservatorship risks, it is probably impossible to sell common shares. I consider it feasible to sell preferred shares here.
Much is theoretically conceivable, but makes little sense in practice. For example, it would be thinkable to issue common shares contemporaneously with leaving the conservatorships. A private placement would be imaginable. But an IPO/SPO would entail the danger that it might fail. A release per consent decree with a subsequent capital raise makes more sense and curbs possible allegations of corruption that could arise from a private placement.
We common shareholders would have a better mood if our Board of Directors had the say again and was responsible for the recapitalization. And I believe it will. If Calabria is responsible, he'll allow it.
GLTA
Source:
https://www.govinfo.gov/content/pkg/USCODE-2018-title12/html/USCODE-2018-title12-chap46.htm
(In order to find the text passages, simply enter a part of it into the search function of the browser.)
Hi again,
Hi Stern is Bald,
Hi obiterdictum,
even though it's not very important, I'd like to respond to that line you made:
Street #CatsofCosenza in Calabria, spotted at least five in the pile pic.twitter.com/9it2wLQv8r
— Mark Calabria (@MarkCalabria) June 25, 2019
Hi Chaser13,
I've noticed that too. And this is not only true for this board. Probably he is Ackman's Advisor or something like that.
GLTY
Much obliged, obiterdictum,
thanks to you I learned anew: LLRE is not the only option for receivership. So my statement "Obiterdictum unfortunately quoted the wrong results" is wrong.
I would like to note that it was not my intention to discredit you or anything like that. When I wrote this sentence, I noted that my two references, your 2014 post and mine from March, provided different numbers. And since I was convinced that there would be no taxes in a liquidation, I assumed that your numbers were inappropriate, as they included a 35% tax charge. Well, wrong thought! According to HERA, Calabria would have the choice to liquidate with or without taxes, depending on whether he founded a LLRE or otherwise sold the assets. Thanks again for the links and the exact sources. I really value your efforts.
GLTY
Topic: Receivership
Hello, folks,
The only way to wipe out shareholders would be to use receivership to liquidate Fannie Mae. This is what the law HERA prescribes.
The Munich company Alvarez and Marsal was commissioned 5 years ago to determine the liquidation value of Fannie and Freddie. The result:
Liquidation value of Fannie: $97.589 billion dollars
Liquidation value Freddie: $73.786 billion dollars
Here you could find the study:
https://bipartisanpolicy.org/wp-content/uploads/sites/default/files/files/GSO%20-%20FNMA%20FHLMC%20Methodology%20%20Assumptions%203-19-14.pdf
However, the study was immediately deleted from the Internet when I posted it here on Ihub:
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=145761537
Yeah, that's how it was. Probably not everyone should know about it...
I know that there is sufficient confidence in me and no one here doubts that the study existed and delivered these results. Nevertheless, I would like to refer to the highly respected board member obiterdictum, who also dedicated a post to the study:
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=99645624
Obiterdictum unfortunately quoted the wrong results - there were two. Anyone who reads my post will understand.
Okay, why is that important?
Quite simply, if Fannie Mae is wound up, of those 97 billion dollars, the senior preferred shares get their full liquidation preference first, then the junior preferred shares. The rest can be shared by the common shareholders.
Liquidation preference SPS: approx. 120 billion dollars
Liquidation preference JPS: 19.1 billion dollars
Should the SPS be deemed settled by the District Court or the Supreme Court, as En Banc's ruling suggests, we common shareholders have approximately $78 billion off the cake for 1.158 billion shares outstanding. The warrant would be void as it cannot be exercised in Receivership. Well, it could be exercised before that. But this is not how it and Receivership were thought of.
Fannie is worth more today than at the time of the study in 2014. However, Alvarez and Marsal have chosen a liquidation period of 10 years, but in Receivership only 5 years are available. In short: I estimate the liquidation value of Fannie at over 70 billion dollars.
So: If you are still afraid of Foster's and Calabria's words, I can't help you. I would say: If we shareholders are really wiped out and erased, the chances of a fat profit are better than ever.
Don't get shaken out. Not that your shares end up in the Growth Fund of America...
GLTA
Thank you, arkup.
Hi 401kobessive,
Hi Golfbum22,
I think tomorrow there will be a big fat nothing burger. But maybe we'll hear some new details. Let's hope so.
GLTY
I think Calabria is the right one. We'll see. His cat fetish makes him somehow likeable. When he masters that mission, higher tasks await him.
Hello, folks,
tomorrow Mnuchin and Calabria will be questioned before the Committee On Financial Services as to what they think about reviving Corker's Jumstart Act and requiring Calabria to provide Congress with 30 days’ notice before making any policy changes.
Mnuchin could say that tomorrow:
Dear Chairwoman, I am committed to working with Congress. But at the same time, it is my responsibility to comply with the President's directive and end the conservatorships of Fannie Mae and Freddie Mac. In order to end the conservatorships and reduce government's role in housing finance, it is imperative to make changes to the SPS.
Calabria will probably say something like that:
Dear Catwoman, uh... sorry... you know my cat Sheila had stomach upset this morning... well, sure, I totally agree to cooperate with Congress.
The show starts at 10:00. To be seen live here.
GLTA
Nice to hear from you, kthomp19,
as always, step by step:
Hi RumplePigSkin,
you're right about the consent decree. I think that there are two reasons why Calabria brought that term into play:
1. Release before Recap is an viable option.
2. Calabria is always able to fix the GSEs even with a new president in office.
GLTY