Didnt Nomura Have Fully Diluted EPS of $.80 to $.90 per share?

Also - a payout ratio of 60%? Where would FMCC common trade with a dividend of approximately $ 0.50 per share?

Right now it looks like the stock is trading at approximately 4 times pro-forma fully diluted EPS and a dividend yield of 15% based off Nomura projections? Is that right?

Maybe it is a good buy and hold for future income?

Thanks nats1.

Thank you also to the other person who's name I cant remember who has diligently posted updateson GFA Holdings - I just cant remember the name of the poster right now.

There is two series listed between the disclosed 60 and 75 largest positions. There is a FMCC preferred with a value of approximately $630 million and a FNMA preferred greater than $500 million on the next page. There are several other GSE holdings including over 100 million of FNMA common later in the Holdings report. My point is that even in the SEC filing that DOC continues to reference there is a statement regarding the validity of equity but the statement does not reference a difference between common and preferred. The GFA seems to continue to purchase both and will probably use its size of Holdings by class and series to force shareholder votes on recap plans.

Growth Fund of America owns approximately $1.5 billion of preferred and several hundred million shares of FNMA and FMCC common. GFA owns more preferred than common - do you think GFA portfolio managers are stupid or possibly think that both common and preferred will do well?

Thanks for your insight Glen

Assuming the warrants are valid - how does the UST settle with existing common?

Of course there could be a settlement in Sweeney's court but the judgement would be paid to the companies directly. This is good because of less dilution and shareholders will benefit from investment return of cash paid by UST. What are your thoughts about this?

What about a shareholder vote and some type of exchange under Delaware law? Ackman might want some type of near term payoff rather than just settling for a derivative judgement and indirect payoff?

Thanks again for all your insight and information over the years.

Thanks Red Cloud.

Looks like the Growth Fund of Americal also owns about $1 bn of Fannie preferred and $600 million of Freddie preferred. About $2.5 billion in total of preferred and common. Seems like they have confidence in validity and profit potential of both preferred and common?

Thanks Ano

I was thinking that Delaware law would apply and that if the required amount of consenting shareholders agreed with an exchange offer then opposing minority shareholders would have appraisal rights like a typical minority shareholder holdout situation. I guess it is possible that the UST just exercises enough warrants to guarantee the success of an exchange offer or shareholder vote for a proposal recommended by a Special Committee with Ackman's participation.

Thank You Again Ano

What about the possibility that FNMA issues new class of common FNMA Class A and make an exchange offer for FNMA Old. FNMA Old can exchange for 2 shares of FNMA New whereby UST Treasury exercises warrants as consideration for the exchange offer to settle claims with existing shareholders. If Ackman and Growth Fund of America agree perhaps the exchange offer can be sucessful? Shareholders who do not exchange could sue in Delaware Chancery Court for appraisal rights?

Do you think this could be a possibility to settle common claims? Wouldnt this require a Special Committee and BOD approval? Basically my question is why wouldn't the settlement with shareholders be decided by an exchange offer and potential litigation in Delaware Chancery Court? Dont you think large shareholders like Ackman are really in the drivers seat and perhaps they will be motivated by getting returns earlier throught a negotiated settlement rather than more court litigation?

Thanks again for your hard work and thoughts.

Perhaps Tim Howard is thinking that the warrants are deep in the money because the equity of each GSE is worth billions of dollars. The strike price of the warrants are essentially zero so the right to purchase 79.9% would be billions of dollars in the money.

Perhaps common shareholders would be offered stock rights as part of a settlement. For example existing FNMA shareholders could be given rights to purchase shares at the IPO price of $20 per share for $0.01. This means that each FNMA share would be worth $20 plus $20 in rights. This may be executed vs a shareholder vote or exchange offer for new shares and rights? If shareholders approve the exchange for new FNMA shares shareholders who do not agree to the exchange could exercise their appraisal rights under Delaware.

Perhaps this all could be done with a shareholder vote or exchange under Delaware law? Perhaps objecting shareholders could rely on their appraisal rights?

Thanks again for all the work Ano!

Looking at the case logs the latest filing is Arrowood in December which would make sense after they were dismissed the Court of Federal Claims. Otherwise the latest filing is November 2019. Wouldn't there be multiple recent filings with similar filing dates if there was some settlement discussions going on that would be meaningful enough to stay the various Court cases?

Try this link - for some reason the previous did not work.

https://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdf

UST may have right to the warrants but they definitley did not honor their stated purpose for the Conservatorship. Another interesting Press Release

https://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdfor

Some or all of warrant proceeds should go to common shareholders.

Why Stop? Nomura is predicting EPS of $0.80 to $ 0.90 per share with a dividend payout ratio of 65%. Most likely worse case is dividends of $0.50 a share for a $ 3.20 stock. You will never have to sell and enjoy dividends from possibly one of the most secure and diversified portfolios in the World. Probaboly should buy more and hold a core position as long as you can.

WoW!!! Thank You For All the Detail and WorK!!

Do you think SCOTUS will review the Sweeney Opinion in deciding Cert? If it does grant Cert will Sweeney be stayed until SCOTUS rules?

FMCC Engagement of McKinsey Should Wrap Up by April

https://www.consulting.us/news/3302/freddie-mac-hires-mckinsey-to-advise-on-capital-management

Hopefully Capital Rules and Guarantee Fee will be determined by then also.

Thanks for the post Altriusm.

Since CDS are usually sold by a Wall Street entity with a large balance sheet it is likely that Wall Street would have incurred substantial losses if the Subordinated Debt of the GSE's defaulted. Ackman would have made a lot of money. It is possible that Goldman could have loss a lot of money if UST Secretary Hank Paulson had taken Ackman's advice and let the Subordinated debt default.

Maybe it was more than Ackman wanting to purchase cheap shares in the future. Maybe Ackman knew that Paulson knew that Goldman would loose a lot of money if the Subordinated Debt defaulted?

In the end - UST guaranteed the Subordinated Debt and stopped all dividends to the JPS and Common. Community Bank holders of the JPS went out of business, Small investors who owned common and recently issued JPS loss their investments. Wall Street sellers of Subordinated Debt CDS and short sellers of GSE equity made a lot of money. Ackman did not make money or loss money on his GSE Subordinated Debt CDS.

Hi Doc.007

Thanks for the reference to the Form 8-K filing regarding the Conservatorship of FNMA.

Have you looked at the FHFA Conservatorship Factsheet which is an Exhibit to the Filing?

There is a Q & A in the Fact Sheet regarding the rights of shareholders and it said that "shareholders" will retain all their rights as determined by the market.

Do you have any thoughts about this:

Here is the FHFA page - look at the FHFA Conservatorship Fact Sheet date September 7, 2008

https://www.fhfa.gov/Media/PublicAffairs/Pages/Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx

Thank You Very Much Ano for the Thoughtful Reply!!

The analysis you have so well reasoned seems to go to the heart what what shareholders should expect from publicly listed entities. If the courts do not uphold investor rights in the case of the GSEs where the taxpayer has been more than fully repaid and where the US govt used the entities to pursue politically motivated policy interests ( making sure the GSEs never return private ownership) why should future investors invest in public private partnerships?

There has been much speculation about a humungeous infrastructure bill that will heavily rely on future public/private partnerships - should investors worry about a back door nationalization or state takeover of these entities in the next crisis?

Another Gigantic Thank You Ano!

Regarding the Duty of Candor issue - how do you look at the liability will play out in a Derivative claim. Am I right to assume that the Company probably fully indemnified the Board so pursuant to the indemnification the Company is liable for the breach of the Duty? How would this work in a Derivative claim since damages will be paid to the Company?

It seems clear that the Fiduciary interest is for the benefit of Shareholders for FNMA since it is Delaware law. How about under Virgina law for FMCC?

Doesnt the breaches relating to the Board really go to the heart of the quote from Judge Sweeney about Hank Paulson and UST acting like "thugs". How can a BOD uphold its fiduciary duties when the first thing they hear is their heads hitting the ground?

Another Gigantic Thank You Ano!

Regarding the Duty of Candor issue - how do you look at the liability will play out in a Derivative claim. Am I right to assume that the Company probably fully indemnified the Board so pursuant to the indemnification the Company is liable for the breach of the Duty? How would this work in a Derivative claim since damages will be paid to the Company?

It seems clear that the Fiduciary interest is for the benefit of Shareholders for FNMA since it is Delaware law. How about under Virgina law for FMCC?

Doesnt the breaches relating to the Board really go to the heart of the quote from Judge Sweeney about Hank Paulson and UST acting like "thugs". How can a BOD uphold its fiduciary duties when the first thing they hear is their heads hitting the ground?

Happy New Year Doc.

Wouldn't the anti-injunction provisions of HERA prohibit the US Bankruptcy Court from granting jurisidiction to one of the GSE's?

Here is a excerpt from page 9 of the Collins Opinion:

FHFA in either role may also order a shareholder, director, or officer to performany function.30 And in either role it may transfer or sell any GSE asset orliability without consent.31 FHFA in either role also benefits from an antiinjunction provision:

Except as provided in this section or at the request of the Director,
no court may take any action to restrain or affect the exercise of
powers or functions of the Agency as a conservator or a receiver.32

Wouldn't your scenario have to be implemented by the FHFA in a Receivership under HERA? If that was the case would common of JPS have liquidation preference?

I hope there is not a Receivership because common shareholders probably have the most upside in a Conservatorship.

Yes - Thank you Guido2. I did go to your links and it is clear that commons have been added by institutions as of the reporting date. Most people seem to believe that common shares offer the best upside potential and probably the best risk return in many potential outcomes. Happy 2020 to All!

The Growth Fund of America is the American Fund entity that has owned FNMA and FMCC. It is my understandint that they owned these shares pre-conservatorship and probably did not sell because they either believed in the value or did not want to realize the capital losses. We do not know what they have done recently but it is hard to believe that they would sell common rather than just buying more JPS or common since the positions are so small. I have owned the Growth Fund of America since 2001 since it is my kids 529 investment and that is the basis for my opinion about how the GSE position may have been handled. Perhaps the important things about the American Fund's ownership is that it represents many small shareholders that have been harmed by the US Govt actions and that their proxy vote will be important in any future shareholder votes such as the vote on corporate restructurings.

Yes! A big thank you to Ano and Obi! Really great analysis and a lot of effort for the behalf of others. Thank you again!

Have you researched if the GSE's could enter Chapter 11. Chapter 11 of the US Bankruptcy Code can not be used unless it is sought by the Debtor and the Bankruptcy Courts have proper jurisdiction. I would think your scenario would be in a HERA based Receivership?

Dont know if they are long but yes Hank Paulson destroyed several community banks when UST did not honor JR Preferred. Many community banks had JR preferred as core investments because they got zero or very low risk based capital requirements due to the implied full faith and credit of GSEs'. Paulson's miscalculation probably caused severe credit crises across small town American as banks suffered GSE investment losses.

WOW!! Great support from community bankers!! 2nd article today pointing to a recap plan in place by mid 2020?

Cap Funds Owned 10% of FMCC in 2008. As of May 15, 2008 Cap Funds owned 64,658,000 FMCC AXA owned about 42,000,000. I think Cap Funds owned most of their FNMA position also prior to 2008. Strong reason for Sweeney to rule for Derivative Suit. SEE Table 117 of 2008 Annual Filing for FMCC

Stop Shareholder Damages - Reinstate the Dividend Now. With the Warrants - 5 times amount of Shares Outstanding So pay 1/5 of 2007 Divend or 10 cents per quarter. For FMCC this would only be $300 million ( 650 X $0.40). Pay the Preferred FMCC 14 bn X 5.5% ( approximate average) or $770 million . Only approx $1.1 bn or cash flow with rest to build equity. This would start making the stock attractive to more investors and build foundation for IPO>

Tis the Season for Side Pocket or Liquidation Portfolio Selling. Hedge Funds are liquidating illiquid positions of investors who redeemed several years ago. They may hold sizable portions of these portfolios and really dont care what price things settle for at year end because they may not get fees on side pockets. At some point they end up owning the residual and that is where they make their money. Selling pressure will dissapate as the year end approaches because the key is realizing cash before year end. Maybe some of the selling is due to this.

UM YAH YAH!! Gretchen is the real stuff! Check out the St Olaf College fight song. Gretchen and the Great Gatsby (fictionally) are Ole's. Great people, great education and rock solid ethics. St Olaf is on the Hill not the Swamp.

WHERE IS THE FHFA OIG? POSSIBLY LOTS OF BUSINESS CONFLICT OF INTERESTS AND INSIDER TRADING FOR THOSE WHO WANTED TO KILL THE GSE'S HOW DID MARK WARNER AND BOB CORKER GET RICH ANYWAY? WHO WAS GOING TO MAKE MONEY BY KILLING THE GSES?

I AM GRATEFUL FOR DAVID THOMPSON AND TIM PAGLIARIA!

Thank you to the posters of this cite. What a great analysis. I am thankful that I am blessed to live in the USA where we have such an awesome instution like SCOTUS. Also Greatful that POTUS made the Court of Appeals judiciall appointments he did like Judge Willet. I believe Secretary McNuchin and Director Calabria are doing the right thing and are constrained by the roles they must play. Ultimately I think UST and the FHFA will do the right thing because it is the right thing and because Obama's administration committed what has proven to me the greatest financial malfeasance in the history of the global capital markets. Ted Liew and Tim Geithner were lightweights without principles and just did what Valerie Jarrett told them to do.

Possibly Sidepockets?

Hedge Funds usually have the right to put illiquid holdings in segregated accounts called side pockets. If a hedge fund had a 20 pct position in GSE Securities and faced redemptions of 50% then the position would become 40 pct. Many times the principals of the hedge funds are large investors and without side pockets the principals and remaining investors would end up holding concentrated illiquid positions. If the fund with a 20 pct holding in GSE securities faced redemptions then the hedge fund manager could create a side pocket for the GSE holdings. Redeeming investors would get 80% of their money in cash and 20 pct in a pro-rata side pocket account or holding entity. Under the terms of the side pocket there usually is a period when everything has to be sold so perhaps there are side pockets ending in 2019 so hedge funds just need to keep selling regardless of price. A lot of time the side pocket investors are no longer remaining investors and the side pocket performance is segregated from fund performance or perhaps the fund closed down so price is not the issue but selling to gain liquidity is.

This might be what is happening. If it is the case we should see prices start rising toward the end of the year when selling is nearly complete and prices rise early next year.

Congratulations to Gretchen Morgenson!!

Gretchen will probably be fair and exhausive in her reporting. If she picks us the GSE issue I would hope she would focus on shareholder rights, the rule of law and investor confidence for funding future public private partnerships. If GSE investors get screwed why would anyone invest in a public private partnership in the future. All Congress needs to do is write a new law after a financial crisis and take the private investors money under the protection of politicians who are free to trade on inside information and judges who are complicit in government takings.

Gretchen - Um Ya Ya - You are the real stuff - when it comes to journalists you are the cream of the crop. Those crooks in the Govt and Congress will sure meet the fate they deserve!

Wow! Wow!

Something to think about is the fact that it looks like The Growth Fund of America has owned a substantial part of its holdings through 2008. They would have legal standing regardless of the issues and represent the interest of small investors via its mutual fund structure. Looks like patience is the key possibly via a SCOTUS decision. Goes to the hard of the rule of law and the sanctity of public private partnerships in the US capital markets.

Richard Eptein is one of the best legal experts in the Country - besides Obi of course. Thanks Richard! Thanks Obi!

Lets Nominate Obi For BOD

Legal pressure will continue by JPS but Commons should advocate for BOD members to advocate for fairness. How about Obi and Ackman? New Shareholders will probably demand BOD that will represent their interest going forward?

Doesnt this imply that the UST will want to maximize common share prices if they are going to have public offerings. Hard to see why they would want to force a receivership or act in a way that would bring more lawsuits and more uncertainty. The best thing the FHFA can do is capitalize the GSE's as fast as they can under the circumstances and acting in a way that would screw common shareholders would be a bad way to have new investors trust the FHFA and UST going forward.

We should look to independent Board Members and Special Committees to hire work with Advisors that can issue a fairness opinion on any restructuring. Ultimately shareholders will have to vote on a restrucuring. Perhaps they keep the common and junior preferred in place and just exercise the warrants for a stock sale but more likely would seem a restructuring which would have to be approved by shareholders. A forgone conclusion if warrants are exercised but a process nevertheless. FNMA and FMCC definitely have value and really are priced like options on a lot of potential outcomes. Could be one of the best long term investments ever at these prices since they have high certainty of long term dividends if properly capitalized. The are backed by the best assets in the world which is homeowner equity in the greatest country in the world. THis seems like great news for the patient investor.

Hi Obi Isn't there an OIG for the FHFA?

Doesnt the OIG have a responsiblility to investigate wrongdoing regarding the GSEs?

Can anyone look into if any one on the Senate Banking Committee staff was trading on inside information. It is possible the rumors that Mark Warner and Bob Corker were shorting are true but guys like Ed Mills with close Congressional connections could possibly have been helping others trade on material non public info? Can Senate Banking Committee staff trade on inside info?

Maybe everyone at the UST and the Senate Banking Committee were on the same page to liquidate the GSE's back when the NWS was imposed? They may not have cared if laws were stretched?

FMCC July 2008 SEC Filing Shows The Growth Fund of America Owned Large FMCC Stake

See Table 117 Page 199 for Management Holdings of FMCC and Large Institutional Holdings

http://otp.investis.com/clients/us/federal_homeloan/SEC/sec-show.aspx?FilingId=6049597&Cik=0001026214&Type=PDF&hasPdf=1