Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Hi Navy,
Where did the Pershing Square Holdings Update come from? Do you have a link for the whole report?
Thanks
Maybe FBR is the mouthpiece for the Virginia based mortgage servicers and the MBA?
Maybe the mortgage servicers and MBA have too many Trump haters and are now crying for help?
Maybe Mark Warner, Terry McCaulife and the FBR guys hang out at the same cocktail parties and invest in the same deals?
Remember Ed Mills who worked on the Senate Banking Committee and then FBR? Look for Rayond James to pile on with a negative GSE article?
https://washingtonlife.com/backissues/archives/99nov/wt_gala2.php
POTUS is likely to assemble Economic Task Force and could be in the media every day until the election touting how his Administration will bring the American economy back again.
I dont see how they DO NOT focus on the GSE's since it is the backbone to the US Housing market.
Remember POTUS has the best people in his Administration and Obama ripped us off with the help of the likes of Mark Warner and Bob Corker. Mark Warner did everything possible to try to impeach POTUS. Liew and Geithner were Obama patsys and made a habit of looking the other way while Obama raided the GSE piggy bank.
Treating FNMA shareholders fairly and upholding the Rule of Law is what we should expect from POTUS because the Obama Administration went out of its way to screw GSE investors and ignore the RULE OF LAW for its own political gain.
Thank You POTUS, Secretary McNuchin, Secretary Carson and Director Calabria in advance for upholding the sanctity of the Rule of Law. Alexander Hamilton showed us the way and Donald Trump will lead us forward to a fair resolution for the benefit of all.
Hi JO
Kthomp19 had a great post regarding the terms of the JPS a few weeks back - maybe other poster or Kthomp has easy access. If they were issued by BAC or JPM they would be trading near par. Regarding the floaters - perhaps they have a floor or minimum fixed rate - also the spread over LIBOR might be higher than LIBOR itself? Have not looked but I am assuming that GSE preferred issued in a financial crisis would have floor dividend rates and relatively high spreads over the floating LIBOR reference rate?
Great Points FFF
Looking prospectively post conservatorship when FNMA and FMCC will be paying a guarantee fee or committment fee - wouldnt the source of the cash be the UST under the terms of the guarantee? or at least the UST would be obligated to lend funds to the GSE to provide liquidity to the mortgage servicers.?
It is my understanding that mortgage servicers are obligated to advance for delinquent payments and of course FNMA and FMCC are obligated to pay the amounts due in the MBS pools if the mortgage servicers do not advance? Since the proposal is for an explicit guarantee - the UST would be on the hook for both delinquent payments and net default payments. Why should the current shareholders have to assume the role of the guarantor now if the UST will assume the role of the guarantor under the current proposal?
Also - I do not understand why some are saying that the net worth of the GSE's are at risk now. It seems the current issue is one of delayed mortgage payments due to delinquencies and not a collaspe of the housing market where the value of the GSE portfolio is less than outstanding loan balances. Do people think that current homeowners are going to walk away from their houses and from the net equity in their houses in the current housing markets? It seems like a bad time to not have the physical security of a roof over your head. Maybe the housing market collaspes but is there really that big of a concern right now? or is it just a liquidity crisis due to the limited liquidity of mortgage servicers?
Thanks Mrfence. I am not sure about the website posted - check out this story - I have no knowledge about this treatment in France but it is an easy google check
https://www.france24.com/en/20200331-french-watchdog-warns-of-dangerous-side-effects-of-unproven-covid-19-coronavirus-treatments
Off Topic - For Numbers Junkies - Norway has a real cool website on CV19. It is in Norwegian but you can figure it out. Check out the slope of Sweden, USA and Italy
https://www.vg.no/spesial/2020/corona/
Sweden has not shut down completely but apparently not many multigenerational households.
Hi Kthomp19
Don you think that all or part of the overpayment to UST should be recaptured as equity? That amount is around $30 bn isnt it? How much to FNMA and to FMCC?
POTUS said " ..I expect to make a lot of money with that money.." after talking about getting warrants with part of the $2 trillion investment.
It is approximately at 1:13 of the Press Briefing on Sunday 3/29
POTUS specifically mentioned making profits off warrants in Sunday's press conference.
Perhaps this will make the focus on making money off the 80% stake in FNMA and FMCC? It is obviously the best way to get a good headline rather than diluting public shareholders via the senior preferred.
Maybe UST/Fed will inject capital in the GSE's in the near term to bring down mortgage spreads and replace Govt capital with private capital raises in the next couple of years?
Politically - a big profit from FNMA and FMCC could be lumped in with other bail out profits to show how good of an investor POTUS and UST are. Making a 100 bn from the UST stake would play best if it was included in CV19 overall profits perhaps?
Hi Kthomp19
Did you listen to this podcast? Pagliara proposed capitalizing the $30 bn NWS over payment as a committment fee and converting the $33 bn JPS as $25 bn additional equity under a Consent Decree capital structure in 60 to 90 days.
Pagliara definitely is proposing that UST use its 80% warrant and the fulcrum security. Definitely a move away from the Par plus missed dividends proposal that seemed out there in recent months? Do you agree that Pagliara's proposal in this podcast is different than the focus of the recent call with Thompson?
Pagliara say that this is a"short term - near term and long term solution" Said it was good for current shareholders.
"Create an opportunity for common and preferred investors to invest more,," - maybe a rights offering?
Lets find a "win win " situation for investors, Government and mortgage borrowers.
Bottom line proposal would be $ 30 bn Committment Capital infusion, $ 25 bn JPS converted capital and current net worth $25 bn. $80 bn in total capital - not clear what percentage ownership JPS would own but it definitely put common shareholders with alligned interest with UST.
Hi Kthomp19
Perhaps common shareholder interests will be protected like they are outside of HERA by the BOD with approval of the FHFA because that is in the best interest of getting a deal done and raising outside capital?
Dont you think Palagria is right in that this will all be settled before new capital is raised? Perhaps Palagria has more preferred because it conforms best to his investment mandate and investment authority of the capital he raises.
I think we both agree that the common is more risky but perhaps more return in a negotiated settlement by all parties?
Hi Ano,
Thank you again for all your time and analysis. Also - I think the discourse between you and Kthomp19 is helpful to the Board because it offers perspective to the many complex issues for GSE investors.
What are your thoughts regarding the application of the investor protections under the Securities Act of 1933 and the Exchange Act of 1934? Is it possible that regardless of how the HERA or other legal issues of the pass are resolved that current common and JPS public shareholders will be given the same rights and protections as all other investors prospectively under federal and state securities laws?
Wont a Special Committee have to be formed and a paid advisor be hired to represent the interest of common shareholders?
Will a shareholder vote be required?
Will shareholders have the option to pursue appraisal rights - at least for FNMA under Delaware law?
How can a recapitalization with new public investor money proceed if proper investor protections like a Special Committee and shareholder vote are not completed? Wont this just open up the GSEs to more legal challenges prospectively - this time for violations of federal and state securities laws?
Thanks again for the reply Kthomp19
Fundamentally, the common and preferred GSE securities are "Securities" of Exempt Issuers - the question is what protections and rights are afforded public investors under the Securities Act of 1933 and the Exchange Act of 1934 - do you agree that is an open question?
When we purchased these Securities we expected to have these protections even though the UST also became owners of Securities via their ownership of warrants. Do you think HERA or some other type of immunity protects the UST for securites law violations?
Why wouldn't UST want the BOD of FNF to form a Special Committee with legal and financial representation? Why would they want to leave themselves to more litigation when they could just exercise their rights and inherent immunities and statutory protections to aggressively dilute public minority shareholders?
Hi Kthomp19
What are your thoughts about minority shareholder rights for current GSE shareholders under Delaware (FNMA) and Virginia (FMCC). As exempt issuers and federally chartered entities how will the State laws apply?
Will there have to be a Special Committee apointed?
Will there be a proxy statement and shareholder vote to approve a restructuring? How can the UST vote without causing consolidation issues?
What about appraisal rights under Delaware and Virginia?
Thanks kthomp19. You took the questions head on and came up with a well reasoned response. I think we both would agree the valuations are very low probability outcomes but I understand the assumptions you made.
Thanks for letting me know kthomp19. Do you think the research makes sense?
Lets focus on the JPS valuation - pro forma net equity of $25 bn as of 4/1/20? Assuming charge offs of $10 bn for 2020 and $10 bn of profit for GSEs of 2020 of $10bn - pro-forma net equity of $30bn as of 12/31/20? Do you think these numbers are reasonable?
How do you get from $30 bn to $2.5 to $3 bn?
Do you think we could move from recap and release to receivership?
Do you think our prospects with the outstanding litigation could come up with an expected value for the JPS less than 75 cents on par or most likely par?
If you answer is - depends how bad it gets - if you take the 2008 scenario FMCC made more money than charges offs in every year during Conservatorshuip so what basis is there for any valuation remotely like this?
Why would anyone own common or JPS if these valuations were reasonably possible?
Is it a real research firm? Just to be clear you posted about research valuing common at $0.25 and JPS Valuation at $2.00 for a $25 par. Seems like fake research - dont you think?
How did they get to $ 0.25 cents and 8 cents on the dollar for JPS? Did they mention Receivership - what do you think net worth of the GSE's will be at the end of March 2020 first quarter - $25 bn. Doesnt this mean a total reversal of the release and recap and imposition of recevership? Doesnt this seem like a hit piece intended to cause capitulation for weary holders of very illiquid positions?
Hi Glen, Is this trolling garbage? How could those recoveries be poosible outside of a Receivership? How do you go from $ 20 bn in net worth to about $2.5 to $ 3 bn in value?
Was this post by the REAL GLEN BRADFORD or is it a fake one? Glen is that you?
Thank you very much Ano. Your updates and discourse with Kthom19 are a real value to this Board. Do you think that SCOTUS could move their Seila decision forward since they suspended oral arguments on other cases?
Director Calabria, Secretary Mcnuchin and President Trump are working very hard to resolve the recapitalization of the GSE's. I confess I have drank the kool aid all of my life but I know that the Obama administration didnt even want to give us dirty water to drink. I have confidence in the rule of law and that it is in the best interest of the US Housing market and the Trump Administration to come to a fair and equitable resolution for FNMA and FMCC.
Thanks Navy! Kthomp19 do you want to respond to the following quote from Tim Pagliara?
"Everybody has to win, so the 20% of non-government shareholders have to win," Pagliara said. "The government and taxpayers have to win. Preferred shareholders have to win. When you put it in that kind of context and you try and say the government is going to be bad with accounting or trying to trick somebody, it's like shooting yourself in the foot."
It would be my perspective that Pagliara is very close to how the JPS plaintiffs see the new capital structure and negotiation objectives - why would the JPS shareholders want to shoot themselves in the foot with an outcome that is not perceived to be reasonably fair to common shareholders?
Regarding a Biden Presidency - why would you think that a President Biden would respect shareholder rights when a VP Biden did nothing?
Did you think Corker/Warner was good for shareholders?
Do you think Biden would favor the money center banks or the Washington DC mortgage finance companies or shareholders?
What past action by the Obama/Biden administration makes you think that a Biden administration would respect the rule of law and a fair outcome for private shareholders of the GSEs?
Thanks again for the reply Kthomp19
When I said sub 5% new junior preferred would be good for common - I meant compared to the weighted average coupon of the existing JPS. I believe you mentioned the weighted average coupon of the JPS is higher than 5% - is that correct?
If the UST treasury wants to maximize their return on common or their warrants - wont they want to issue new preferred if it increases their ROE on common which also will increase market value of commons?
Regarding dilution - I believe we have two different opinions. I would think that the UST would want to avoid a perceived unfair outcome with the likes of the Growth Fund of America and Ackman. Also - I would think that any conversion of the senior preferred is two contentious so the interest of UST and existing common are aligned.
Congratulations Guys!
Just putting it in perspective - if FNMA makes $8 bn per year that is $21,917,808.20 each day. We may be diluted or not but the value of equity will increase approximately $44 milliion more before the open on the market on Monday. Maybe we will get billions more in damages - we definitely deserve it!
Thanks for the reply.
Fair enough - good points
Sub 5% newly issued preferred stock will help common valuations over time.
Regarding COCO debt - I did not know that the statutory definitioon of capital was so narrowly prescribed.
Sorry for the typo on COCO debt
Should have said:
Another type of security that may be considered is a form of "COCO" debt which may be treated as regulatory capital This debt will convert to straight equity if certain financial metrics are breeched. This was used to meet the massive capital needs of European financial instutions in 2009.
Here is a cite:
https://www.investopedia.com/terms/c/contingentconvertible.asp
Thanks for the constructive post Louie
I noticed that JPM issued a series on non cumulative preferred at 4.75% in October 2019. With interest rates at current levels it may be conceivable that new preferred could be issued around the 5% level or better. I wonder if it makes more sense to call the existing JPS and issue new preferred at the 5% level. Possibly less dilution for UST and existing common shareholders?
Any consideration is a risk sharing type security which would be treated as regulatory capital. During 2009 many financial institutions issued "COCO" contingent debt that becomes equity depending on certain finanical ratio triggers
https://www.investopedia.com/terms/c/contingentconvertible.asp
Thanks again for sharing your perspective
Thanks Kthomp19. I appreciate you being clear on your position regarding the potential upside for the common. Personally I think it would be stain on the legacy of Secretary Mcnuchin and President Trump to perpetuate the greatest heist in the history of the financial markets.
This is an opportunity for the President to do the right thing for private investors and the capital markets. Common shareholders deserve a fair return. Trump can make $30 to $50 bn for the US Taxpayer on a deal that Obama was going to give away for nothing under Corker/Warner.
It is not worth bantering about this any more. It would seem that we will know how most of this is going to turn out some time this year.
Thanks for the thoughtful reply Kthomp19
I think your points are fair regarding the likely treatment of the JPS but I dont understand how you can have such a strong opinion that the common shares are the lesser investment. Are there scenarios in your mind where the common shareholders will greater returns especially because you believe they have greater restructuring risks if I understand you correctly?
It may be a philosophical point about whether or not the sanctity of markets and the rule of law only apply to debt but not equity but since we are talking about public/private partnerships where future politicians and judges can bend rules dont you think the slippery slope of bad predecedent and political expediency is one the likes of Secretary Mcnuchin is wise enough to avoid? Personally I think it would be a sad legacy for the Secretary and President - there really isnt much difference between subordinated debt and equity.
You brought up the GM investment where the UST agreed to a deal where it would never make money but did so to save jobs and the auto industry even though ultimately they loss approximately $11 billion. Why not keep the value creation in the equity since the UST will retain 80% any way and preserve the sanctity of capital markets.
Finally why would the UST use there position in the Senior Preferred to creat value vs maximizing the value of the common and actually pull capital and cash out of the GSE's?
Dont you think Trump would like the headline - Obama lost $11 bn on bailing out GM but I made $50 bn for the US Taxpayer through common stock sales while making the US housing system safe and sound for future generations?
If the UST/FHFA comes up with a plan to maximize cash proceeds for UST via future stock sales - wont the existing common shareholders benifit accordingly?
Again - are you taking the position that common shareholders can not achieve equal or better returns than owning JPS at current market prices?
Hi Kthompson
Regarding your other points why the UST may not care about the sanctity of public/private issuer debt - perhaps there are several pragmatic and philosophical reasons why.
Philosophically I believe Hamilton was right when the US Govt honored revolutionary war debt because the sanctity of contract law is paramont when it comes to the global debt markets. I would wonder if Moody's and Standard & Poors could justify rating public/private debt AAA if there was precendent for future politicans to screw debt investors by legislative action in time of a crisis.
Philosophically - I think Directory Calabria, Secretary Mcnuchin and Present Trump care about the rule of law and are much more sophicated and honorable that the likes of Geitner and Liew. Obama had no background in business or finance and frankly he probably didnt care if he his policy screwed investors.
Pragmatically - Mcnuchin and Trump have been and probably will be in the mortgage and real estate business. Public/Private partnerships are a corner of mortgage and large real estate and infrastructure projects and why would they want to hurt the financing options for these type of projects with wider risk spreads caused by political and legal uncertainy from a GSE prececent that screwed investors? Just look at some the announcements by FNMA and FMCC where they are financing projects around the country on behalf of real estat big wigs.
Pragmatically - I would suggest that the GSE equity is the fulcrum security in a restructuring and that the UST has the most to gain by maximizing the value of GSE common stock. Perhaps the value is more like $ 8 to $ 15 like AGC suggests but I dont see the upside in screwing common investors when the UST owns 80% of the common?
Pragmatically - the UST needs to settle the derivative shareholder suits and Ackman's suits - dont they or am I wrong about this? Why not come to a resolution that is good for the common security litigants and the UST warrant valuation?
Practically - why does the GFA continue to purchase common? Why does Nomura have a buy on the common? Why does ACG have a valuation of $8 to $15
Why would the UST go out if its way to screw the little guy when there is a golden win/win/win situation by a fair and expedient restructuring of the GSEs?
Hi Kthomp19 Thanks again for taking the time and sharing your perpective. I think the public discourse is informative because of the different perspectives and knowledge bases.
Why does timing matter when interest rates are at historical lows? I am sure others have a better understanding than me but it is clear that there are both mortgage finance and capital market value considerations to drive timing decisions.
Regarding capital market timing:
If the JPS stays outstanding - why convert a 5.5% preferred when the issue could be recalled and refinanced with a 3.5% preferred? We dont know what the future capital structure will look like but at such low interest rates some type of newly issued straight subordinated preferred or a risk sharing COCO type security could make a lot more sense than converting to common or leaving it outstanding.
Furthermore - you may be asssuming that JPS shareholders will get value for pass missed dividend payments - does it make sense to have those accrue at 5-8% when they could be settled and refinanced in the 3 to 4% range?
Regarding mortgage market fundamentals:
30 year mortgage rates are approaching 3% and there will be a likely refinace boom. Perhaps UST rates approach 0% but there will be a massive refinancing boom and the GSEs will end up holding the newly issued mortgages over the next few years. Even if new competitors come into the picture in the next 5 years the mortgages that will come on the GSE balance sheets due to this refinancing boom will stay longer because there will be no economic reason to refinance in a zero interest rate environment or a rising rate environment. The result is that weighted average lifes of 30 year portfolio mortgages will extend toward 15 years and the corresponding net interst margin and periodic fee income will also extend.
The reason that weighted average lifes of mortgages matter is that the net present value of these annuities increase with longer lifes and lower interest rates. If you discount $100 for 15 years at 2% rather than 3% the net present value of the annuity discounted at 2 % is significantly higher and of course an annuity that is outstanding for 15 years is much higher than one outstanding for 8 years in a low rate environment.
I understand your point regarding the timing regarding the election and it makes total sense but possibly this low interest environment will increase the value of the GSE's by multiple billions because of better refinancing scenarios and extension of mortgage portfolio average lives.
With the 10 UST at historical lows now is the time to settle the lawsuits and start the recapitalization process.
The GSE's are likely the largest public/private partnerships in the world and any infrastructure project going forward will likely have public/private partnerships going forward. If the US Govt can stiff GSE investors then any future leglislative body going forward can stiff future public/private partnership investors by enacting emergency legisltation and allowing governmental entities to brazenly violate basic contract law principles and fundamental tenents of property law and due process.
Upholding the rule of law in public finance is one of the key principles of Alexander Hamilton and I expect Secretary Mcnuchin and President Trump to follow in his footsteps because they have a sophisicated understanding of the capital markets.
Wow!! I hope your position in FNMA and/or FMCC is a very very profitable one because you deserve it for all the work you have done.
I noticed that the solicitation for work in the last pararaph regarding the FHFA was extended from February 28th to March 4th. The description of the project also specifically mentions that the contractor is to work collaboratively with Hollihan Lokey. The FHFA is definitely moving toward the exit from Conservatorship. I just did not realize the advisor selection process was so detailed but it makes sense and it also brings context on why the timeline can slip by weeks and months.
Do you think the Conservatorship Capital framework would represent the lower end of the Risk Based Capital numbers. For example if FMCC has a $50 bn Conservatorship Capital number - a $ 75 bn Risk based capital number is in range or above range?
Does FNMA have a Conservatorship Capital number?
Of course there is the Guarantee Fee but that is another set of quesitons.
Thanks!
Thanks - do you know that or is it speculation? Does any one know what the Nomura pro-forma shares outstanding are for their recommendation. $5 seems low for a settlement with the likes of Ackman and The Growth Fund of America. It must be assuming a rights offering or warrant modification?
Thanks
Do you know what type of assumptions are being made around capital raise requirements, possible settlement damages, dividend yield, pro-forma book values before dilution?
Hi Glenn,
Can you share the logic/analysis for the $4.5 to $5.00 IPO price?
Is that for FNMA - have you seen a price for FMCC?
How would this type of price satisfy Ackman and The Growth Fund of America?
Thanks in advance if you would be willing to comment.
Thanks again for your reply. I understand your rationale for not seperating the valuation potential for FMCC and FNMA at this point. Of course once we know the capital requirements then the divergence potential would seem to become more concrete.
Would you agree that any new cash raised would be invested in the assets held by the respective GSE and earn a return?
In reality dilution is mitigated by the portfolio return of the underlying assets which becomes part of the income stream to support a dividend yield. Do you agree about that point?
Would you expect FNMA and FMCC to trade higher than the pro-forma book value after a settlement?
Perhaps the largest determinant over pro-forma book value would be the expected dividend yield?