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Shareholders' rights. Act II
Mr. Kiciloff said today in regards to Repsol's expropriation:
Kicillof se justificó hoy tras el acuerdo alcanzado con Repsol y dijo que “es imposible no pagar una indemnización porque es ilegal. Lo manda la ley de expropiación”.
Even Argentina is going to pay shareholders something re the Repsol nationalization. The U.S. should do the same.
No problemo, as long as he gets paid in equity :)
About.
Last press releases speak of government inducing local demand by affecting imports and government loan guarantees which will help reduce interest rates. This is mostly industry related and not company specific. On a DIP these shares are toast, I think. Only 20% of their debt is held by intnl banks so there is a lot the Russian gov can do to move the needle in favor of mtl. Or not.
"this is about our capital markets, this is about the economy"
Not a huge position. Just a starter.
Debtor in possession financing is in conflict with the current waiver of covenants. Why would the company be given waivers to immediately after enter a situation that carries even more restrictions?
We will soon know what the aid is about but it appears is not only mtl that requires help so if the support is industry-wide this may give mtl a better chance and much more time to straighten out the ship.
Thank you, letgo.
Thing is populist governments can always ruin a good thing... anywhere. And for a long time.
Poor Marx and poor Keynes. They would have never imagined their theories being used by governments only because they help justify ever-increasing State power and dominance, the base of authoritarian regimes.
Ooops.
That's where I was born.
On shareholders' rights: not completely O/T and worth a read...
Today, the Argentine government announced it has reached a preliminary agreement with Repsol, the Spanish oil company to which the Argentine government expropriated 51% of its shares in 2012 effectively nationalizing the enterprise. As part of the deal, the government will pay Repsol 5 billion for the expropriated shares as compensation to shareholders. In exchange, Repsol may drop all lawsuits.
Two days ago, the government elected a new minister of economy -Axel Kicillof- who is a follower of Marx and it is being rumored he is learning German language in order to read Marx's work in its original language. By selecting Kicillof the government reinforces the path to a Venezuela type of economy with central planning and an overpowering State focused on redistribution of wealth.
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If Argentina has been able to achieve the miracle of respecting shareholders' rights it is virtually impossible for the US not to do so.
What if he solves the second lien issues and banks jump start lending? Then, originations can grow considerably and we will all benefit. Specially Fannie and Freddie.
I am sorry feral. I was out all day.
After their exchange, Corker made a final statement regarding Millstein owning the Jrs. and telling the whole world for the nth time how he and his family will benefit from a reform that will include revaluing the Jrs. Corker tried to stop Millstein from defending himself but Millstein got louder and said "Senator, I do not own any GSEs securities anymore". Then, he expanded briefly saying his interest in the hearing was as a real estate developer that wants to see things done the right way (or something like that). Corker remained silent.
Nice how Millstein shut up Corker's big mouth.
Go Millstein!
Politicians -in general- will not want shareholders to come out winning in anyway.
But they are smart enough to know two things: a) they could hurt themselves by hurting money guys even if those that they hurt could be replaced, b) there is a limit to their lawlessness and that is the courts.
So they will try, but they will measure the risks.
All this is fine. And I agree with most of the government's perspective on the problem. But whatever reason they find is enough to justify a shutdown, it falls short when trying to explain stealing profits from rightful owners of 20.1%. These are two different problems and the same argument does not apply. Whether the government likes it or not they -at some point- will have to recognize the fact that there are still shareholders out there.
I only hope that JPM's WAMU strategy doesn't apply here. That of robbing the companies and leaving shareholders in the dust.
A top economic adviser said Wednesday that Fannie Mae and Freddie Mac aren’t for sale in a bid to squash hopes that the Obama administration would allow the firms to be recapitalized.
Gene Sperling, the director of the White House’s National Economic Council, said the administration would not support plans to recapitalize Fannie Mae and Freddie Mac in their current or modified forms because of the difficulty to solve core concerns over having two large entities dominate the nation’s $10 trillion mortgage market.
Mr. Sperling’s remarks follow major moves last week by hedge funds and large investors to up the ante in their campaign to have the U.S. government restore value to the shares of Fannie and Freddie, the mortgage-finance giants that the government bailed out in 2008. Here’s what he had to say about housing policy:
s to up the ante in their campaign to have the U.S. government restore value to the shares of Fannie and Freddie, the mortgage-finance giants that the government bailed out in 2008. Here’s what he had to say about housing policy:
MORTGAGE LENDING STANDARDS: Mr. Sperling became the latest Obama administration official to raise concerns about access to credit for new households:
Nobody wants to go back to the recklessness that led to this crisis but we should recognize the pendulum has swung too far. The credit box is too tight. The FICO score is overly demanding. And that means too many families are locked out of getting mortgages.
THE CASE FOR A FEDERAL HOME-LOAN BACKSTOP: He stressed the importance of preserving a key mortgage-bond market known as the “TBA” or To-Be-Announced market, which allows homeowners to lock in rates on 30-year, fixed-rate mortgages well in advance of closing on those loans:
Most 30-year fixed rate mortgages are pooled and traded in the TBA, or “To-Be-Announced” market. The presence of some form of remote, transparent and explicit backstop is critical to the functioning of the TBA market because it will continue to attract investors who are willing to take on interest rate risk but not credit risk. This is something you would want to preserve.
WHY THE OLD MODEL FAILED: Mr. Sperling laid out his view of why Fannie and Freddie—which are sometimes referred to as government-sponsored enterprises, or “GSEs”—became such dominant market players during the 1990s and early 2000s:
At the core of the failed model of what went wrong is unquestionably the implicit government guarantee of GSE-insured, backed securities and their debt. This implicit guarantee meant that market participants perceived taxpayers would step in and cover any losses at the GSEs even if those companies did not pay for the costs associated with that implicit guarantee. This gave the GSEs important competitive advantages that did not prove to be beneficial for our economy as a whole. The GSEs cost of funding was significantly cheaper than their competitors, which allowed them to crowd out competition. It allowed the GSEs to take on excessive risks without suffering the normal market consequences of higher borrowing costs. And collectively this enabled the GSE to grow into a duopoly in the housing-finance market that made them perceived to be too big to fail. The larger the GSE became, the more this perception of too big to fail and implied government guarantee got strengthened. And this flawed model was exacerbated by the fact that there was a structurally weak regulator that permitted gross undercapitalization of these two firms.
WHO CAUSED THE CRISIS: Mr. Sperling said that Fannie and Freddie poured fuel on the fire but they didn’t start it, a point of heated debate over the last five years:
Now it is important to note that the GSE business models, while fundamentally flawed, were not the lead or primary cause of the foreclosure crisis. Predatory lending, inaccurate credit ratings, regulatory failure, lack of skin-in-the-game by market participants, and much more—“an era of recklessness”—were the primary causes of the housing crisis. But as a result of the GSEs flawed models, when the financial crisis started, rather than being a buffer against the housing downturn, Fannie and Freddie actually contributed to the systemic instability.
WHY THE COMPANIES SHOULDN’T BE RECAPITALIZED: Mr. Sperling said the risks of the companies returning to their old forms would be too great.
Some have suggested that because the housing market is improving an because Fannie and Freddie are profitable again, we do not need comprehensive housing-finance reform, or that you could have reform that would recapitalize these firms in their current corporate form but somehow do so without the implicit government guarantee or without creating a too-big-to-fail duopoly.
I want to make clear our administration believes the risks are simply too great that this model will recreate the problems of the past. I will repeat: we believe the risks are simply too great that this model would create the problems of the past and here’s why. New entrants could rightfully fear that GSEs would have an infrastructure advantage given their legacy pipeline and relationships. The GSEs [information-technology] infrastructure is connected to nearly 2,000 originators. New entrants to the market would have a sensible reason to fear that they would find competing against this structural advantage to be prohibitively costly. New entrants could also have reason to fear that the GSEs would have the economy of scale advantages which would provide higher profit margins and greater ability to undercut competitors on price. And new entrants would also have reason to fear that GSEs would still retain cost of funding advantage given their size relative to smaller competitors even without a government guarantee.
In light of those risks, all of us should fear that we could recreate a duopoly that the market would perceive as too-big-to-fail market entities with an implicit government guarantee—the core of the GSE failed business model we are trying to replace, revamp, and say “never again” to.
THE PROSPECTS FOR BIPARTISAN LEGISLATION: Mr. Sperling applauded the efforts of Sens. Bob Corker (R., Tenn.) and Mark Warner (D., Va.) who took the lead earlier this year on a bipartisan overhaul bill. Sens. Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho), the heads of the Senate Banking Committee, are now working on a similar product:
We were very engaged in helping when asked with the drafting of the Corker-Warner legislation. That doesn’t mean that we agree with every aspect of it, but we saw it as a good and constructive effort and it was worthy of our cooperation. What Sens. Corker and Warner put together is an important start … but ultimately for this bill to happen, we will need the leadership of Chairman Johnson and Ranking Member Crapo. And we are working very closely with them on that. We believe that there is no reason that we should not try to move as quickly as we can to explore the possibilities of how fast we could pass out of the Senate Banking Committee bipartisan legislation.
I understood your response, Obit. Made me smile :) I know outcomes don't generally depend on how certain we feel about things. Specially if we don't play any part in the game.
I like your conviction regarding the lawsuits, obit. Gives me a little more peace of mind. But war it is!
Well put, Obit. And I agree with your conclusion that the legal process will separate the wheat from the chaff to only leave the pieces that will properly fit into the final whole.
I can't precisely say much about the lawsuits in spite of some heavy reading. The missing actor, the government, hasn't revealed all what it thinks. Not to mention I am far from a legal expert but my layman view is that there appear to be some inconsistencies for the court to assess and that this inconsistencies will take greater importance as the process goes on shifting the center of the discussion from simply taking private property away and similar claims to the deeper meaning of what occurred and how.
Say, the claim -by gov- that individual shareholders have no claims because there are no individual shareholders anymore finds receptive ears on a judge, the court may still struggle with the notion that the one and only standing shareholder -FHFA through the conservatorship- immolates the institutions that give this shareholder the sole reason to exist. A contradiction in itself. Just like allowing stock certificates to continue to trade/exist while shareholders were absorbed into one single entity taking their place. How would those buying valid shares in the open market be called then? Were or were they not shareholders? Were or were they not buying valid shares of existing companies?
In the end, the sloppy process the government carried out may come back to hurt them. Unless a judge determines that the situation at the time was such that the government couldn't have envisioned all what later happened, thus validating some of the inconsistencies.
Unlike the majority posting I do not think the lawsuits are a done deal. And I have large chunk of preferred shares.
Always good to read your comments. And always informative with supportive documents, links, sources. Thanks!
So, in January I should have time to fire up PACER and read some of the materials in the ten takings cases. Maybe I'll get a place near Key Largo for three weeks.
I believe you meant the 5th amendment, lol.
I do not know. And I know very little about Ackman's plan. Neither can I say if the "REIT" idea refers to the GSEs becoming large landlords.
However, I did a quick count on HomePath.com to see how much real estate Fannie Mae owns. A rough count by state led me to over 49,000 homes. This is Fannie's REO and could be an outdated number, a figure that isn't taking into account all what they owe and/or a figure that is not contemplating future foreclosures that may lead to an increase in the REO count. Freddie may have as much?
So one can say that the possibility of Fannie and Freddie becoming very large landlords is there. But, at what cost? What is the state of such real estate? How much improvements are needed? Have the neighborhoods where they own property kept up? Is there infrastructure in place to start a rental operation? This could in some fashion prolong their existence regardless of other visions/offers/plans.
Nothing has been said that enables to establish a relationship between Ackman's action and the 3rd ammendment problem. Has he been outspoken in this regard? For all we know he could be simply placing a bet that there will be a win at the courts. Which may make any deep reform by Congress a lot harder. Perhaps his bet is that the future is better regulated GSEs that stay. So no run off and no Berkowitz.
Very impressive music knowledge...
Question: does Ackman's suggestion that FNMA should adjust its business model to become like a REIT mean that FNMA could somehow remain in existence beyond the run-off time period (in a world where Berkowitz's offer was accepted)? Berkowitz's plan seems to preclude that possibility doesn't it? So can we surmise that Ackman thinks Berk's plan won't fly?
Well... I am wearing my favorite Jimi Hendrix t-shirt today as I consider him a creative genius.
I say this while I am standing on Obit's shoulders... and a few others.
Thanks.
Stereotaxis
The rights are stxsr
In one example I have seen, the common shares tanked and so did the rights. At an extreme if the common price hovers around conversion price the rights will have little to no value. But getting back to the above example, some investor came in at the last minute and scooped up all possible rights and before expiration the stock shoot up and never looked back. In retrospect, the rights was *the* deal. It will be a period of both price manipulation and confusion as rights owners who are not in the loop will be sidetracked. Right now, I am in a rights offering situation that will conclude in Nov. 21st. Will see how that goes. So far, share price is up and down but lately more up than down... and participants are very confused.
You are not given rights shares.
Thank you for always bringing clarity.
Yes, his calculation must be that the first 2013 sweep would represent excess dividends to UST, therefore dividends to Jrs. get enforced. So adds one full year of dividends (Y) for all 2013 plus half of 2014 till the cut-off date. That is 6 quarters of dividends which -if this plan gets any footing- current Jr. holders will never see. These funds will become restricted capital together with (x) funds. Or that is his optimistic expectation.
I am a little lazy now to see if the 1.36 bill difference matches aprox. 6 Q of dividends. But I'll try later.
Hopefully, the plan has also contemplated to convert (Y) funds into pari-passu commons and distribute those to the owners of those dividends. This only makes sense. Or Berkowitz himself will be involved in taking property from others under his own plan.
Well... looks like another chance to add at a lower price. Already in the 100ks.
For what is worth total issuance outstanding for both GSEs of Jr. preferred shares is 34.73 billion (June 2010).
Source: Board of Governors of the Federal Reserve System - International Finance Discussion Papers / IFDP 1045 - March 2012
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Some more feedback, if I may... New commons will be "pari-passu". However, the paper speaks of dividends attributable to new equity capital, which is roughly 1/3 of total equity (17.3 VS 52+/-). Is Berokwitz saying that the dividends that correpond to profits emanating from the 17.3 will be split among the whole universe of commons (converted + rights) or will simply go to the commons exercised via rights?
Because of the pari-passu term it appears ALL commons will have immediate dividend but only from 1/3 of profits for the restricted period in which restricted capital will not derive dividends. Is this your understanding too?
Thank you for bouncing back.
lol wouldn't that be something!
the juices are flowing
Thank you, Obit. You are always generous with your time and always very patient.
A minimum participation threshold for owners of Preferred Stock
would be set to ensure success.
i have not heard anyone here saying that prefs could be worth more than RV.
Obit, does the document clearly states that Jr. holders will have a choice whether to convert -and become owners of the NewCos- or maintain their holdings and be paid out dividends by the old Fannie and Freddie once all requirement for this to happen have been fulfilled? I mean a specific, clearly written formulation.
I also understood the "non-participating preferred shareholders" as you did but it was more of an inference. Could not find a direct reference to the split. If this interpretation is correct, the non-part will not be new owners and will eventually have to be redeemed at some point in the future once FF close their books.
Also, the deal on the table must specify the split and at least 2/3 of the holders (of various flavors) should agree to it (in addition to the main participants, Treasury and FHFA).
And do you understand from the document that dividends to old preferreds will apply immediately after a) Treasury gets those additional 2 bill, b) Treasury gets paid a reasonable return TBD? Would then the remaining Jrs. be next in line?
I'd be rich if I knew, David.
brandemarcus, I was thinking about this too in regards to Berkowitz plan. Since the government will be out of the picture pretty much. Except for normal regulatory biz. Wouldn't that be a spectacular endorsement?
Now that you mentioned it I think I remember... maybe in the google group.
Maybe it was a typo (Berkowitz)
lol
or Geithner's fat finger?
Thank you, Obit.