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We are all bickering over commons vs prefs...
Commons will be X price.
Prefs will hit par.
Prefs will get conversion.
Will warrants get exercised?
SPS cramdown?
SCOTUS will rule favorably.
Catman will lose his nuts.
Share price will be XYZ.
In actuality none of that is even important. The one true purpose for Mnuchin releasing the GSEs is that he gets to decide who will be the next owners of FnF. Their earning prowess will take care of itself in due time.
JPS cancellation will add to CET1.
Since they are noncumulative, divs never have to be turned back on ever. They can just be cancelled permanently.
The amigos are coming.
It is a recco.
Timeline 101 if there is a SPS cramdown, JPS will get diluted to oblivion.
If JPS were to convert, they would convert first and then cramdown occurs second. JPS diluted to oblivion.
JPS are junior to seniors. There is no way the seniors go first and JPS go second.
JPS massive dilution to come... Its coming amigos.
It's not like Jr. Preferreds can be diluted, unlike FNMA Commons.
My baseline market cap estimate is $200-250B. FnF have made upwards of $23B per year in the past, but their earnings have been inflated by almost $8B per year for the last 8 years due to a drawdown of a $72B benefit for credit losses. Only $9B remains of that, so it will roll off early in 2021.
Thus my go-forward estimate of FnF's combined earnings is around $18B. A P/E range of 11-14 gives a rough market cap of $200-250B.
With 1.8B outstanding shares, a no-dilution gives a price range of $111.11-138.89, which I have just rounded to $125 in my calculations.
Divide by 5 for the warrants to get $25, then the capital raise will cut that by at least 2/3. Add in a junior-to-common conversion and that's where my estimate of $5 comes from.
Agreed. 1-For-10 Reverse Split for FNMA is likely.
$2 FNMA would become $20.
It's coming amigos!
Honestly its just to keep up with the news.
The dog poop throwing is just for **** and giggles because at the end of the day, everyone is probably wrong and this whole thing is just a dice throw anyway!
You can never rule out Value Menu FNMA. And with no positive news for Commons in the near term, it's likely it fills that Gap around $1.65.
Rising commons share price is a threat to the JPS conversion dream.
As we definitively move closer to exiting conservatorship with each concrete hurdle that passes, the commons price should rise each time.
1) Capital rule
2) SPS deemed repaid
There should be major price movements occurring after #1 and then after #2.
JPS will not have converted prior to #1
JPS will still not have converted prior to #2
Commons will be well above current price of 2.09 after #1 and #2. JPS better hire more commons cancelled and bloomburger to try to keep commons lower for longer... The above thesis isn't even mine, it was Ackman's and I think he is right.
Aside from that... with all of these valuations of what the GSEs are worth why do people keep applying a P/E ratio to them? That is incorrect because after the capital raise to achieve release, the correct valuation should be closer to the P/E ratio + the total capital raised. With each dollar they raise they hold onto. That is pure cash. The best companies to buy are the ones holding a ton of cash.
Last but not least, this is not a bankruptcy restructuring where new capital can just come in and squeeze out the existing equity holders by whatever arbitrary % they want. The current CET1 existing holders hold are real and sizable.
It is impossible to value without the share count. I would definitely recommend valuing by considering warrants, SPS going back to 10% and tax credits of 124 billion dollars coming back.
Then the SPS is converted to common.
If you cannot value something, I consider the worst case scenario. That's how you win in the long run.
... and his best work to date wink
"But I expect — and actually why is that relevant? It’s relevant because one of the remaining risks for common stockholders is dilution from an IPO. And one of the — part of the bear thesis is that the stock’s going to get issued at something approximating the current share price. And therefore, there’ll be massive dilution.
What’s interesting about that is it’s incredibly reminiscent of the commentary around if you go back and look, call it 10 or 11 years ago, circa 2010 — actually nine years ago, when general growth was making its way through the bankruptcy process, which reminds me very much of the conservatorship process and the bear case. And someone actually shorted the stock and put out a public presentation.
We had fun defending the company in that circumstance. But the bare case was the company was going to do a massive equity issuance at a very low share price. And the point we made is that as we made then and that applies here is that, as each of these sort of hurdles are addressed and achieved, so for example, the capital rule was finalized, we expect the stock prices to move significantly up on that development.
More materially, the preferred stock purchase agreements, when that gets resolved, we expect the stock prices of both companies to go up significantly. When — we have an expected date for an IPO. At a certain point in time, the government will be in the best interest. I would say we’re getting very close to that time now.
The government owns warrants on both companies. And in order — the other development which we did not mention is that the government has an RFP out for a financial adviser with a target date of hiring them sometime in the relative short term mid-November I think.
Anthony Massaro
Yes, by the end of November.
William Ackman
End of November. So you’re going to have an investment bank and adviser, whose objective is to raise the required — help the government raise the required capital that’s I think the first priority but also to do it in a way that’s least dilutive to the government that owns 79.9% of both of these companies.
So you now have the government working alongside a financial adviser that has an obligation on behalf of their clients to maximize the outcome and then what we expect to be a series of positive developments as each of these hurdles get chipped away. And so what’s fascinating is about the company, both companies is the higher the stock prices go the more the businesses are worth.
What I mean by that is, since there’s a large equity offering that will get done here and we don’t — $100 billion is not the number but something in the order of we think $25 billion, $30 million, $35 billion IPO. It’s still potentially quite dilutive that as the stock prices go up, the amount of the company that remains owned by the current shareholders increases, which again makes the company more valuable, which increases the profitability of the stock going up. And you get into this sort of upward virtuous cycle. And it’s worthwhile to take a look at the experience we have with general growth, which had a very analogous situation where there was a large equity backstop that got funded once the companies emerged from Chapter 11.
So the emergence from conservatorship will be yet another catalyst. And a listing ultimately on New York Stock Exchange or a major exchange, I think will allow the securities to be owned by a much broader array of investors.
The last point I would make is what’s interesting in the last period is that the preferred stock has been actually somewhat weak. And I think what’s going on is many of the investors that own preferred are now finally realizing that the common stock is if you will the fulcrum security.
So many distressed investors always lean toward owning kind of senior securities, I think have begun recognized that the upside here all the residual benefit will inure to the benefit of the common stockholders. And we believe that some of the very large holders of preferred have now been buying common and may even be selling off some of their preferred stock in order to acquire the common, which we think offers a more attractive risk-reward and better outcome in almost every circumstance."
look, I hold 100K common (50K from 8/08) and really want this to work out ... but what facts are you aware of that suggest the warrants won't be exercised and the gov't isn't out to screw us? ... my pessimistic opinion is based on known facts (suggested capital requirement, continued fighting against our law suits, dismissal of wash fed suit, possible one year delay for SCOTUS Collins decision, failure to release hidden docs, etc.) ... I DO believe FnF are LIKELY to be released, eventually, but I have ALWAYS said that outcome may also lead to massive dilution ... the dilution you mentioned suggests the warrants are not exercised ... but, sadly, the warrants maybe the ONLY thing that tempers ADDITIONAL dilution by the gov't ... though even that's not reassuring as they gov't may not give a hoot about additional dilution if they get to keep the NWS on top of their f'ing 80% windfall ... so, any facts you care to share?
The "guarantee" of JPS conversion is nonsensical bullshit. The conversion only accomplishes two things. It eliminates the coupon future dividend drag on earnings when/if eventually declared. And it increases CET1 capital by approximately $33 B (combined) but does not increase Tier 1 capital by even a dime. The rulemaking comments already signal a fight on both the amount of and type of capital proposed in the Capital Rule put forth by Calabria.
So let's just lay the truth out on the table on the motive behing the Moelis conversion scam. Any conversion requires consent by a super-majority of JPS holders. They will want a conversion at or as close to par value as possible. Then the conversion would be priced, historically for such equity swaps, on a trailing 30 day common share prive average basis. So the simple math is that the trailing average, at present, would be about $2. So to convert $33 B in JPS (at par) into common, the deal would require about 16.5 B common shares. There are only 1.8 B total FnF shares in the float, now. So JPS holders would net about 90% equity ownership of the GSEs, leaving existing shareholders with less than 10%.
Talk about a wrest of control.
Nice try, but this is NEVER gonna fly. JPS needs to stop trying to steal the company as it approaches the brink of restored value once conservatorship ends. The combined total of a released/recapitalized/relisted FnF is somewhere between 5X and 10X multiples of $33 B in JPS par.
We have gone through nearly 13 years of government stealing everything from shareholders. It is unacceptable to contemplate some new SCAM where JPS follow the government theft with a continued 90% stealing of everything belonging to the emaciated common masses, going forward.
Fannie and Freddie could be his next target (move).
That's a guarantee that everyone can count on. JPS Conversion to Commons is inevitable.
Anyone that understands Capital Structure will come to the same conclusion.
Jr. Preferreds Convert at Par and then get to enjoy all of the up-side Commons have after the re-IPO.
This is going to be epic. It's Coming Amigos!!
The SPS Cramdown Plan might be the cleanest, fastest, and easiest way to recap the GSEs.
Especially if SCOTUS (Seila) rules FHFA Director Calabria is removable, then I don't see how we don't get a Sr. Preferred Cramdown Recap if Biden wins in November.
FNMA will absolutely get its knees cut off in this scenario, but that's the risk of investing in Common shares.
Even with Consent Decree, Biden may impose additional requirements which may make Recapitalization complicated, maybe even impossible.
SPS Cramdown makes the most sense and Morgan Stanley & JP Morgan will likely push for this since it's quick and easy. They want their pay day sooner rather than later!
Louie, the CET1 capital has to come from somewhere. Getting enough capital interested in a raise of this magnitude is no small feat
And don;t say what a wonderful opportunity GSE's are -- the political risks are real, the regulation is pain in the ass, and the history is toxic
Getting $33 billion in capital in a conversion a no brainer, since you could lock in that capital BEFORE the offering of new common and hence lower the burden for that massive offering. Like Citi, one converts at the average price of the common for the previous 30 days - what could be fairer than that? Market price.
That makes the offering of new common smaller and hence more viable - and less expensive...
A Kthomp noted, and as I posted yesterday, JPS conversion is an option explicitly mentioned in TREASURY PLAN and then included in most recent FNMA 10-K by Calabria. This is not just people mentioning conversion, but the only people with power here -- Mnuchin and Calabria
I find all of this, and points raised by Kthomp, Michael Kao and others, very persuasive. But we can all make different evaluations and then make our own investments accordingly... GL to you and all longs
Its hilarious how there is talk about how difficult it may be to raise the amount of required capital when this is clearly a self created problem.
FHFA is making it vastly more difficult to bring the GSEs back to safety and soundness by holding onto the warrants. They simply just need to give it up and the capital raise will sail forward so much more easily.
Therefore the question FHFA has to wrestle with is whether bringing them to safety and soundness or government greed is of higher importance... If the warrants stay then it is the latter.
Misconception about valuation?
This seems pretty clear to me but are some of you seeing this differently than me?
The GSEs have "x" valuation right now.
When the capital raise happens via SPO... that valuation is no longer "X". It is now "X" plus "Y amount of capital" that was raised.
The valuation has increased because all of the capital that the GSEs are now raising cannot be spent at vegas.
Normally with other IPOs sometimes with private equity... they will take the proceeds to pay themselves a chunk rather than keep it at the companies.
That is not the case here. They aren't allowed to use the capital for "other" reasons.
The capital raises are not 100% dilutive, it is also ADDITIVE in nature.
No. Incorrect. Every dollar needed for capital that is discounted in a rights offering means even MORE shares must SPO'd or less capital than needed is raised.
How does rights offering raise capital? The SPO raises capital; the rights offering in the manner suggested diminishes the capital the GSEs need in order to earn release from C-ship.
If you don't take it, you get squeeze off the table. If you do take it you may be able to hold your seat...
Its a somethingburger at least.
I just like this new idea of warrants
I like the idea of getting something for so many years, 8?, without interest payments -- so maybe warrants are it
We shall see in November.
Anyone have a valuation of what these 2 are worth and a PPS estimate?
I see numbers thrown around like 300B market cap and 20B floating shares...
With the capital raise of approximately 250B in liquid cash... are you all telling me that the valuation of their earning potential is only at 50B???????
That doesn't seem quite right.
FNMA conversion ratio should be worse than Citi...
As positive developments roll in, common prices should rise. The further the date of conversion the worse the outcome will be for pref.
Of course unless manipulation of commons occur to keep price low (:
Even with uneventful news, fnma has managed to spike beyond $4.25 but now that we are having concrete outcomes... I expect it to go beyond that. Citi conversion price was at 3.25
Just a hunch.
The numbers should come down a little bit... This is just a 'proposal' and it is open for commentary for the next 60 days. The timing was also purposeful in that the decision for seila in SCOTUS should be in before the end of the commentary period...
Squidward is traversing a delicate political aisle. You kind of have to start off strong and then ease down a bit. Its like when you're bartering, you start off with a high/low number and then end up meeting each other a bit closer to the middle.
Don't think the GSEs will be bankrupted. If the GSEs will be released eventually, Fannie will be $20 IMO. And, WH has officially announced the intention to release them already. The only risk to me is Trump not re-elected, which will be clear in Oct. MC and Mnuchin seem to be trying every means to slow down the Recap and Release. IMO.
They varied considerably and sometimes traded as much as 70% of liquidation value. That is not "around par." Logically they traded in line with their benchmark rates.
You cannot fix stupid or crazy. Not pointing out anyone except for that Carlos guy on Twitter.
He seems to have strong vibes for both.
1) At the moment, zero because FnF have $23B in capital and the seniors have a liquidation preference of $200B. If the seniors were to be cancelled or converted to common, the book value of the juniors right now would be $23B, or around 2/3 of par.
2) I already answered this one, saying "I believe it is very high, because the prefs must be dealt with (most likely exchanged for commons) to achieve a recap. A re-IPO with this huge block of prefs in the capital structure is much more difficult than if they were exchanged for commons."
So might make 8 1/4% a few years after release from c-ship under consent decree on that preferred issue? Why that almost keeps up with a CD rollover, WOW!
fnmat is fixed 8 1/4% coupon and there is no way i buy common v this issue.
re the floaters, if not exchanged/redeemed, they should trade at yields slightly above t-bills implying a slight discount to par at worst
Damn, is that it? $4.5-$5? After 7+years and average of $2 invested, $4.5-$5 is the best we can get?
Plausible as this might sound, it is false. The best proof is in the form of the pref series FNMAO and FNMAP. They are $50-par, variable-rate prefs that currently trade around parity with the rest of the less liquid prefs (20% of par).
The kicker is that their dividends would be nearly zero if the pref divs were to be turned on right now. FNMAP's would be $0.02 per year and FNMAO's $0.01.
Why, then, do those series trade at the same level as the rest of the less liquid prefs? The only real value in preferred shares, compared to commons, is higher preference in liquidation and dividends. Since the dividends are nearly nothing for FNMAO and FNMAP, the liquidation preference must matter quite a bit in the eyes of the market.
If liquidation preference meant nothing then shouldn't these series be trading at almost zero? At best they would be out-of-the-money call options on future interest rates.
Yes, there IS evidence that FNMA did not have "negative core capital". Evidence:
https://www.americanbanker.com/news/fannie-mae-freddie-mac-will-retain-45-billion-in-capital-in-first-step-toward-privatization
Further, FNMA has been permitted to retain some earnings, and they dont have to send "it all":
https://www.bloomberg.com/news/articles/2017-12-21/fannie-and-freddie-permitted-by-u-s-to-keep-3-billion-buffers
Sometimes you are so dogmatic you refuse to recognize truth.
Core capital requirements applies to FIs like banks where there is run on the banks.
For Insurance companies capital requirements are different.
Th wall street crooks imposed core capital requirements to destroy FnF.
FNMA should be buying back stock Now !
The UST has the GSE,s Capital it’s just needs returned = Recap and Release.
On top of that FNMA and FMCC...SHOULD BE BUYING BACK STOCK...at these low prices.
Ask yourself the question...when will they ever get the chance again to buy back stock
at these low prices.
JPM and BAC cant seem to even pay back the money from the bailout from the government!!!!
JPM never paid back 3.1 billion of 2008 bailout and BAC never paid back 2.1 billion.
If they are making so much money, why cant they even pay back the government bailouts????? (like fannie mae did!)
Source:
https://projects.propublica.org/bailout/list
Scroll down to chase and BAC
That's fair comparison so let's take apples 55 billion net income divided by 4.34 billion common shares outstanding trading at $286.69 and do a little math.
Apple earned $12.68 per share and trades at $286.69 per share.
Fannie Mae earned $14.2 billion with 1.16 billion shares outstanding equaling $12.24 per share and trading at $1.90
Would yah be a dear and run the numbers on the rest of those companies for the board? smile