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WoW - Thank you for the reminder JusticeWinWin!!
Everyone on this Board should read these cites to remind us how intentional this theif was.
I cant imagine why this Administration would want to be involved in anything that would perpetuate this theif of shareholder property. The theif should be exposed for what it was and all shareholders should be treated fairly with due process and normal shareholder protections like proxy votes and Special Comittees.
Thanks Barrario - Great Article
Bill Ackman should become Chairman of the Board of FNMA. Perhaps he will make sure FNMA common get treated fairly or if they dont he can litigate the fact after they exit Conservatorship.
By the way Holihan Lokey is also located in the City of the Angels. Someday we all may be able to check out of this Hotel California investment.
The two major holders of FNMA Common will have a seat at the table when negotiations happen. Bill Ackman will most likely be a strong advocate for the common shareholders. Capital Group which is the parent company for The Growth Fund of America has over $1.8 trillion in AUM and has been in business since the 1930s with a headquarters in Los Angeles. Los Angeles is also the residence of the US Treasury Secretary.
The FHFA Director as Conservator will most likely avoid a scenario where there is a perception that the process was unfair for one set of existing public investors. HERA gives the FHFA director wide discretion but it may be unlikely that the current Director would want to perpetuate the legacy of the past Administration.
The future path for current litigation will be materially impacted by how SCOTUS rules on Seila and if they act on the related cases. Perhaps it is waste of time to speculate until SCOTUS rules.
Thanks Holden
THe legal liability would be post cramdown based off securities law disclosrue and fraud allegations and violations of minority shareholder rights under Delaware law.
The suit would probably be a derivative suit or possible TRO to stop a stock offering. THe FHFA would be alledged to be acting without authority under HERA because it is not following long standing principles of Conservatorship implied by incorporating FDIC resolution principles.
The guy who wrote this White Paper is pretty smart and it is my guess that he is fair and principled:
https://www.cato.org/publications/working-paper/conservatorships-fannie-mae-freddie-mac-actions-violate-hera-established
Why not appoint a Special Committe and treat common sharholders fairly - why screw millions of families investing for their childrens college funds and retirements?
Hi Joseph,
Minority investors have protections against unreasonable cram downs based on precedent in the Chancery Court of Delaware. Perhaps you will be right but it will be based on the intepretation that Calabria is justified is authorized under HERA. Calabria himself in his previous life at CATO believed that the FHFA was violating its role as a Conservator based on FDIC resolution principles. His argument was that HERA implied that FDIC resolution principles should be followed.
Another Average Joe FNMA Investor
https://www.capitalgroup.com/individual/products/college-america-529.html
Largest owner of common and one of the largest JPS holder.
I guess I expect the PM at The Growth Fund of America to negotiate as a Fiducary for all the college fund investors and other mutual fund investors? Wouldnt this put the interest of common shareholders high on Director Calabria's priorities when resolving the outstanding legal claims?
Hi Holden,
Thanks for your research and all your efforts on behalf of FNMA common and JPS shareholders.
I want to shout out for the Average Joes:
As you probably know one of the heroe's of Average Joes had this to say all most 7 years to the date.
https://nader.org/wp-content/uploads/2013/05/lew-5-18-13-11.pdf
Hi Kthomp,
I wondered if you noticed the wording on the top of page 103 of the proposed regs - .. ^For example , a tailored exception (referencing dividend restrictions) to allow for some distributions on an Enterprise's newly issue preferred stock migh increase investor demand for the offerings of those share...* They definitely are differentiating here with the word " newly*. Probably means they will refinance JPS or convert?
Also Table 8 on Page 101 is interesting. Looks like payouts will be prorated and not eliminated until the capital buffer gets below 25% of required levels - do you think this takes the zero coupon JPS scenario off the table?
Did you see the Compliance Period provisions on Page 249. The dividend restrictions would kick in the later of one year from the publication of the final rules or the termination of conservatorship. Do you think this also takes the no dividend to common and zero coupon JPS scenarios off the table?
Kudos to Director Calabria! Followed through with an intelligent risk base capital structure to protect the US Housing Finance system and the US Taxpayer. Bravo Director Calabria!!
Navy - do you think the FNMA - FMCC spread will invert today?
How about issue Sub debt or COCOs for buffer capital requirements?
Thank you Holden
It seems that they could the capital they need a lot faster via COCO issuance. Probably could do $25 bn each for FNMA and FMCC on one shot.
Do you think they ever would issue Euro denominated and swap back to USD. European investors with investment authority limitations would probably eat the up since they are very familar with contingent structures and are desparate for yield. EUR 1.5% FNMA COCO swapped back to USD - maybe 2.5 to 3.0 % all in?
Probably a great diversifies to German Bunds with negative interest rates.
Hi Kthomp
Did Tim Howard suggest that subordinated debt could be used?
Any thoughts on COCO debt being part of the capital stack since it is contercyclical?
https://en.wikipedia.org/wiki/Contingent_convertible_bond
Hi Kthomp
How do you think the transition to a independent BOD would work? Will there be a shareholder vote right after the offering or will new investors have to wait until an annual proxy vote?
Hopefully we will know soon enough but your insistence that the FHFA can or wants to run everthing seems implausable because it leaves new investors with no independent representation from the time of FHFA control is relinquished to the time of effective representation.
It seems much more reasonable to select an independent BOD prior to the issuance and provide for staggered voting to remake the BOD based off of shareholder voting but yet provide for continuity as the GSE moves towards full independence.
We will see - hopefully in the next year.
Hi Kthomp
We should see soon enough. You seem to have this digital view of things where one day you flick the light switch and wham - you have an independent board and independent advisors. Seems implausable and brings unnecessary execution risk for one of the largest equity offerings in history.
If they are going to appoint sets of lawyers it should come soon enough so perhaps you are right.
Dont risk your dinner funds - its scarry out there and now is no time to speculate when you cant afford it or if you dont believe in the stock. Wait until underwriters are chosen and give them a chance to have a top rated analyst recommend buying the stock on a public offering. It is likely to have a good dividend, covered by a top rated analyst from a top rated investment bank and owned by top rated institutions. The dividends may help keep your family fed with spagetti dinners in the future.
Thanks Kthomp
How can the BOD of FNMA and FMCC approve the corporate and securities transactions without counsel?
How can they settle without counsel?
Great Points Donut!
Dont you think it is another opportunity for POTUS to show how stupid or corrupt the previous administration was. Why wind down something when you have warrants worth billions of dollars? Maybe because your friends can make more money without the competition? Where would the US homeowner be without reasonable financing for 30 year fixed mortgages?
Thank you Yanks and Kthomp
Do you think we will see RFP for separate legal advisors for FNMA and FMCC like the FHFA has already done?
Yes - Thank You Ano!
Hi cflj
Yes you are correct. I did not separate the $ 30 bn amount. What are your thoughts about how the excess payment could be allocated as part of a settlement?
FNMA vs FMCC?
FNMA JPS vs FNMA common?
Thanks for the correction.
Hi Kthomp19
What do you think the settlement will be for the preferreds. For Example FNMAT with the 8.25% coupon? I am thinking 175% of par - par plus loss dividends since the NWS in 2012? I know they are non-cumulative but the assumption is that FNMA would have had enough cash to pay divs since 2012 but for the illegal sweep.
If you think this is plausable - then FNMAT would convert at $43.75 of exchange value. Others would be less - for example 5.5% would convert at 144% of par - overall I am thinking average conversion would be about 160% of par or about $50 bn in face or an approximate $ 20 bn settlement gain.
Wouldn't a high par plus conversion make sense from a capital perspective - adding $ 20 bn to the $30 bn par of JPS would increase core capital which is the end goal and this would also make JPS holders happy?
If you assume the the UST was overpaid $30 bn and allocated $ 20bn to the JPS to get a settlement - why not allocate $ 10 bn to the current public common shareholders?
If you take the $10 bn and allocate $ 6 bn to FNMA common - this would be a settlement of $ 5 per share. Assuming Nomura and AGC are reasonable you are looking at $5 to $ 14 per share without a potential $ 5 settlement - maybe $ 10 to $19?
The flaw in your logic is that you think the UST will want to screw the existing common to make the new shares attractive to new capital. I disagree because the best strategy is to maximize the core capital potential of existing JPS and to minimize dulution of the UST warrants. It seems you are assuming that the UST will screw common and themselves by first consumating a dilutive JPS to common exchange and dilutive share offerings? This seems unnecessarily destructive?
Additionally you speak of an upcoming arbitrage opportunity - be careful because it is not clear the exchange will all happen at the beginning. We could have 4 tranches of new offerings over 4 years and the JPS could be exchaged equally over all four tranches in order to limit the stock overhang of the JPS conversion.
I dont see why it is smart to do a conversion of $ 30 bn + par of JPS just prior to a stock offering? It would seem really stupid because all the JPS holders that that been holding for over a decade will seek liquidity and cause a multi-year overhange. Dont you think the FNMA advisors will want to restrict common sales after the JPS exchange?
Check out the Calendar on the lower Right. Looks like Opinions tomorrow and maybe Monday/Thursdays going forward. Arguments finished today for the Term
https://www.scotusblog.com/
SCOTUS to issue more Opinions tomorrow at 10EST. Probably not Seila but they have issued one opinion of case argued during same sitting of Seila but not out of question. They may wait until June because Seila is considered a "major case"
See Statistics tab of SCOTUS blog for status of all the Opinions.
Thank you Judge Lamberth!
While some common shareholders are extremely frustrated with the miscarriage and delay in justice, it is important for all of us to appreciate the work you have done and continue to do in light of the necessary safety precautions from the stay at home orders. Many courts around the country are closed and many, many, legal cans are being kicked down the road. We are fortunate to have you move this case forward under the current extreme circumstances.
Not only are you a distinguished member of the bench, you continue to work and serve our justice system with significant personal risk. As many of us know - years of life experience usually comes with personal health ailments that come with the wisdom of age . Thank you again for your service.
That is just your opinion Ktomph
Given all the malfeasance by the UST, Hollihan and the advisors for FNMA are just as likely to negotiate and coordinate a settlement with the plaintiff classes including common shareholders prior to the capital raise.
If all interested parties spend all the effort to negotiate the settlement there is no reason that the terms of the settlement would be recommended by a Special Committee of the BOD and ratified by a shareholder vote under Delaware law.
It does not make sense to me why UST would just settle with the preferred and negotiate the terms of a conversion without negotiating with common plaintiffs and common shareholders. If terms are negotiated it would be perfunctory to achieve the legal certainty that comes with a proxy statement and shareholder vote under Delaware law.
The Good News is that former President Obama now is concerned about the RULE OF LAW!. Judge Sweeney, Judge Lamberth and Judge Atlas please take judicial notice that even though Treasury Secretary Lew and his crony lied, stole and obstructed President Obama now firmly believes in the RULE OF LAW.
SCOTUS could issue more opinions next week but it is not clear. The Sineng case was argued during the same February session as Seila so perhaps Seila could come early but it is not clear if SCOTUS will wait to June to issue Seila since it is considered a major decision. Two of the major cases argued in October still have not been released so perhaps all major cases get released toward the end of the SCOTUS term. It does seem like Kavanaugh would be most likely to write the Seila decision since he has only authored 2 decisions to date where Ginsburg has already authored 5 decisions - got to admire RBG for her dedication and hard work.
Hi Louie,
Both FNMA and FMCC have the unique status of being Federally chartered rather than being incorporated under the laws of a particular State. Nvertheless, FNMA has adopted the Laws of the State of Delaware and FMCC has adopted the laws of the Commonwealth of Virgina to be governed by. Conceptually these State and Commonwealth Laws would govern issues not preempted by HERA or other applicable Federal Statutes.
Why are you reposting a March 18th American Banker article?
Well Stated Chessmaster!
Director Calabria many shareholders believe you are doing a great job but we are expecting a fair and expedient exit from Conservatorship. Shareholder rights and the rule of law must prevail. This is America and our housing finance system is at the core of what makes America great. [color=red][/color]
One this is clear - POTUS likes to be thanked when his Administration has done a good job.
Secretary McNuchin and Director Calabria are stand up guys who believe in the rule of law and want the best for our Country. It is in the best interest of the global financial system and US homeowners and investors that we have a successful recap and release of the GSEs. There is no incentitive to screw common shareholders in the process. The final returns may not be as high as some would like but we should expect a fair and resonable process. Nomura and AGC have values between $5 and $14 per share.
Thank you President Trump, Secretary McNuchin and Director Calabria for working toward a fair, timely and reasonable recapitaliation and release from Conservatorship for FNMA and FMCC
Or just chill in your LZB recliner in your FNMA financed house and hang out with the CIOs at AGTHX and PSHZF. Its been a long long time but might as well hang out in 2020 and see what happens with Sweeney, SCOTUS and the Trump Administration. You know what you can loose.
Judge Sweeney will be fair and is working hard to resolve the issues. This is a shout out to Judge Sweeney - keep the wheels of justice rolling!!!
Director Calabria is doing a great job also. Also - he is having to make tough decisions on behalf of the American homeowner in a time of crisis. I am confindent he will take his role as a Conservator for shareholder assets seriously and come to a fair and principled outcome. The previous Administration ripped us off and Obama holdovers stand in the way of justice and a fair resolution. Did you hear that prick who argued for the Govt in the Sweeney oral hearing - that is who you should be complaining about.
Judge Sweeney - if you see this post - I think you are awesome and want to thank you very much for upholding the rule of law. As a FNMA shareholder I have confidence that you will be fair and compensate JPS and common shareholders for the severe economic losses we have suffered for over a decade.
I also appreciate you continue to work and move these cases forward during this time of a public health crisis.
God Bless Judge Sweeney!
Shout out to Mannsinger for the Fidelity Asset Management FNMA Holdings Link:
Under Equity Holders - click on the Institutions Box - the Mutual Fund Holdings come up first.
http://finra-markets.morningstar.com/MarketData/CompanyInfo/detail.jsp?query=22%3A0P0000023H&sdkVersion=2.49.0
Looks like it might be held in a separate account other than a mutual fund - maybe part of an asset managagement business?
Hi Kthomp
Your $ 8 estimate is the most reasonable and is consistent with some of the valuations that Nomura and AGC has suggested. As you mentioned in the past AGC has an estimate of $ 6- $14.
These type of baseline valuations would indicate why first mover institutions like The Growth Fund of American and Fidelity Asset Management added common shares in Q1 2020.
Your JPS holdings will do well also but it is clear that major insitutions own both common and JPS and have added to common in Q1 2020. If they did not have confidence in common valuations they would not have added or they would have reduced.
Thanks for the reply
What precedence to you think this might be for other companies taking money from the US Treasury?
If the US Treasury invests in airlines and oil industry companies, perhaps a future US Congress passes a version of the Green New Deal whereby the Department of Energy has the right to sweep all future profits to pay for mitigating climate change?
Isnt there a dangerous precedent here with what was done with HERA? When capital was raised with the massive JPS offerings - OFHEO was the regulator and then FHFA became the regulator with vastly different rules and capital standards? Dont you see a dangerous precedent here going forward?