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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
What is the largest company (by Enterprise value, often used as a sale price for a company)?
A. Apple
B. Microsoft
C. Google
D. Something else bigger than all of these.
Answer is D. FNMA is many times larger than all 3 of these huge companies combined!!!
FNMA Enterprise value:
3.586 TRillion (3586 billion) Source: https://ycharts.com/companies/FNMA/enterprise_value
Apple EV 1.246 TRillion Source:
https://ycharts.com/companies/AAPL/enterprise_value
Microsoft EV 1.243 Trillion Source: https://ycharts.com/companies/MSFT/enterprise_value
Google EV 751 Billion (.751 T)
Here is a link to the Series AA prospectus. It is non-convertible and non-cumulative.
On page S-7 (page 11 of the pdf) it says "The Preferred Stock will not be convertible into, or exchangeable for, shares of Citigroup common stock". This clearly did not stop Citi from offering a voluntary exchange! Thus the argument that FnF's prefs have similar non-convertability language in their circulars does not mean they cannot be offered a conversion or exchange later. I can't tell you how many times I shot that argument down, but this is the best proof yet. (I'm not saying you have made this argument, I'm just putting it there for the interested reader)
Not sure how some folks here are always BUY BUY BUY and LOADIND LOADING LOADING all day long and never run out of money.
I have my core shares that I have NEVER traded in 7+ years. I bought at $3.07 after en banc then $1.42 after CCP (Chinese Communist Part) virus. I am out of money.
Regarding the upside at $6 you may be right because I would agree the JPS gets par and probably par plus unpaid divs. If the valuation approaches the $14 level then common is probably clearly the better trade.
P shareholders also seem to forget that in order to be a conversion there has to be a vote. And they probably know that there is NO WAY C holders will agree to such a conversion. Or do they?
How would you vote on a conversion yay or nay? big smile
I'm not sure why people get so excited about converting preferred to common. In some cases that's built into a preferred share's contract as an incentive to buy at a lower interest rate, but doing it after the fact like this is really meaningless.
I would likely just sell my preferred before the conversion date since I wouldn't want so much in one stock. The market should price the preferred at the same price as the underlying stock.
A conversion is three transactions:
1. An IPO of new shares
2. A redemption of the preferred shares
3. A purchase of those IPO shares
For tax reasons I'd rather just sell, then decide later if I want to buy more common shares.
But yes - converting shares is a way to recapitalize by diluting commons with the new shares. Recapitalizing by issuing new preferred protects the common share prices, but is slower and eats into profits.
Reality says that the common shares will have limited upside as long as they don't pay dividends. They must pay preferred dividends before commons can get any. Most all juniors are at much higher than current interest rates. My FMCKJ pay a minimum of 7.875%. They will want to liquidate those ASAP and replace them with new preferred shares at much lower rates.
But they can only pay off the juniors on (in the case of these) the 5 year anniversary. For FMCKJ the next redemption date is December 31, 2022. If they want to offer dividends and not pay that high rate they will have to get junior preferred to agree to a buyout. Probably something like face value plus 1-3 years of interest depending on each series' redemption date.
The board's hands will be fairly tied until the Preferred are offered something. So that first board meeting - the first order of business will be to get a vote from junior preferred shareholders.
Or they do nothing and they can't do any capital raises - which actually would be good for commons with the NWS ended and seniors deemed paid off. Just stay in conservatorship until they save up enough profits. No dilution to commons - stock price rises $10/year for a few years.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=152937003
Patswil - I have said previously that the SC case could be a game changer - but mostly to the bigger issue of whether what they did in the past was unconstitutional - see David's comments about this - I think they start at 21 minutes. I agree with what he said about the 2 issues - the first was whether a director could be removed at will rather than for cause - its possible that the court will rule that the director can be removed at will; but then Gabby chimed in and asked about the second more sweeping issue - about the structure of FHFA and about the past actions - including the NWS - whether they are constitutional. I agree with David that its a stretch - but the issued is on the table and if the court rules for the plaintiffs this can't help but speed along a settlement. I could be wrong and agree its a long shot. We will see very soon.
Nats
These agreements are voided with the cancellation of the SPSPAs as they are a part of the SPSPAs...
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FRE/warrant/FRE-Warrant.pdf
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/warrant/Fannie-Mae-Warrant.pdf
Solutions:
The just solution is to reverse all actions taken by FHFA. of course, this is not possible. So I suggest:
Refund the $124 billion mentioned by Judge Sweeney as the overpayment.
Cancel the warrants.
Cancel the Senior Preferred Shares.
Cancel the Liquidation Preference.
https://www.marketwatch.com/story/citi-gives-public-preferred-5-15
Different conversion rates for different prefs.
Conversion at a premium to market. "A person familiar with the matter said the price was calculated using a 20-day moving average price."
Be aware that as the news start coming in and the commons start spiking, the returns on the pref conversion may not be as good as you may think (: Of course a lot of it still has to do with at what price you picked them up at.
What does that mean here?
Could mean the same thing or nothing at all...
Especially when they have limited 5 year call windows.
Boy that jogged the memory
All of the paper is past 5 years the usual call barrier
But some - ? - can only be called on 5 year cycles ?
Do you know if that might be H I S (which I own)
Interesting point !! --- if and when it starts paying again - it likely will trade below PAR for uncertainty (my guess) and not adjust for the higher than market interest so yield to maturity will like be coupon yield plus the step up to par
hhmm
not me
on a 5 and 10 day basis the JPS are doing 2-4 times better than FNMA
that said - at 4 and change and 5 and change they IMO were bargains as they had 4-6 bagger potential
now as they get to 7 or more - I think the money will switch back to common
just my two cents
as I own both on a steady basis
But the bottom line is that they want to exit conservatorship. To exit conservatorship they need to do a cap raise (to anyone who thinks that they can do it with retained earnings over the next ten years - let this latest crisis be a lesson to them).
Not a good idea to borrow. And NEVER borrow at 33%...
How do you think the really low-div series will be dealt with? Freddie has several series that would pay dividends well under 1% of par value if divs were to be turned back on right now. Example: FMCCM, $50 par, $0.19 divs per year.
The fact that the market prices it at $8.25 right now, while higher-div series are mostly between $9 and $10, tells me that the dividends might not matter as much as I once thought. Someone paying $8.25 for FMCCM is doing so almost solely for the place in the capital structure given the tiny dividend.
I think we'll make out ok... future share buybacks will bring the dilution back down to earth. Large % shareholders get to put members on the board, they can't just leave all those excess shares out there!
In the event we do get wiped out, I'll probably just move to another country because at that point I've lost all faith in the US of A.
Mnuchin is going to make bank on this somehow or why would he be interested in this to begin with. Before he even got sworn in hes been making remarks and comments about the GSEs. Got everyone's hopes up didnt it?
Don't forget that he partnered with Dell, Paulson, and soros on the OneWest Bank take over that netted him 150million. He definitely has a payout waiting for him somewhere by someone if frannie recapitalizes. He'll definitely get the snowball rolling before he leaves office which may be soon. Some big moves before the year is over.
I believe he is actually incredibly patient.
A bunch of those OneWest guys are at the currency of comptroller... Coincidence huh?