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Indeed. The longer they wait to do Moelis, the more dilution will be required in order to meet the 2020 timeline. Common shareholders should be urging their representatives to support Moelis and get it going sooner rather than later.
Longer wait = More dilution
Moelis Prayer:
Moelis, my heart is broken but You are near. My spirit is crushed, but You are my rescuer. Your Word is my hope. It revives me and comforts me in especially now.
Moelis 3:16
Preferreds shares get to vote on any changes that directly affect them. That's the best vote you can have. Sadly, Commons don't get to vote on any of the dilution that's forthcoming, since those decisions will be made by FHFA/Treasury long before their voting rights get returned.
And no, FHFA/Treasury can't alter Preferreds since they have a little something called Contract Rights.
Since the Gov owns 79.9% of the GSEs (via the Warrants), there are concerns about Commons ever having voting rights. Is it possible that Commons never get voting rights again? Absolutely! Let's see how everything shakes out.
Good Luck making decisions with 20.1% of the Vote
Didn't realize Commons regained their voting rights. When did this occur? At his critical stage, the Board of Directors doesn't even have a vote, it's all FHFA and Treasury, and we know the Good Ol' Boys Club are all heavy in Preferred Shares
Colors and Bold don't make AJ dreams true. Why would they do it slow & gradual? The next recession isn't too far away. If they take their time to recap, odds are quite high taxpayers would need to bail them out again, which would assure cancellation of all shareholders.
Swift and Fast is the ideal recap method for all shareholders
2 years would be what, ~$18B in capital? Depending on interest rate fluctuations and accurate hedging. That's nowhere near the $100B that's likely to be required.
Retained earnings is an unlikely route to recapitalization due to the timeline. Capital raises (dilution) are far more likely.
This is an excellent summary of on/off topic. I completely agree with your analysis.
We are all a part of the same company to one degree or another. There is a hierarchy in place, which needs to be acknowledged (Preferreds > Commons). But there can be no Commons without Preferreds and vice versa.
In the end, some of us may sink (Commons) while others swim away (Preferreds). But there are other scenarios where we all ride the wave to Average Joe Land, aka $1,000/share.
Let's hold hands, sing Kumbaya, and pray to the Moelis gods:
Moelis, my heart is broken but You are near. My spirit is crushed, but You are my rescuer. Your Word is my hope. It revives me and comforts me in especially now.
Moelis 3:16
That's a negative. That can't happen without capital. Any new capital raised will be retained to meet the required capital framework.
As a Common shareholder, you should actually want them to be buying back Preferreds since most of your profits will be going towards buying the Preferreds back at Par and/or towards paying their Dividends.
Buying back Commons does little since they will be selling lots of Commons at lower prices in the near future.
Are Preferreds going to pull the Commons down? Tough to say which one is leading the other. With Commons down ~50% YTD and Preferred only down ~15% in most cases, who is leading who!?
Just wait until the capital raises get announced. All that dilution is going to hurt. Commons can do little but complain as their 21.001% ownership slowly slips with each capital raise. Existing Commons will be lucky to still own 10% of the GSEs after all the raises, LOL!
Preferreds going down might be a taste of things to come for Commons. Could Commons see another -50% from here? Absolutely!!
Board of Directors can also Cancel Commons by buying them at Par Value - $0.001. At least if they cancel Preferreds, owners get $25-$50 depending on Par.
Sadly, Commons have sub-$0.01 Par Value ... aka, JUNK
Disagree with you. Lots of scenarios where Preferreds do significantly better than Commons. All of the stuff you referenced - Dilution, Reverse Splits, Conversions, and Cancellation -- are all on the table.
Very few scenarios where Commons do better than Preferreds. There's really only one scenario: retained earnings recapitalization.
And that's not going to happen as it would take 5-8 years to get to the required capital ratios.
#PreferredsForAJP
I'm waiting for those real cheap Commons, sub-$1.
Might be worth grabbing some there; otherwise, Preferreds are clearly the better buy at these prices.
#SayNoToAverageJoe
No one is buying back shares. Stop with the nonsense. The GSEs can't and will not need able to buy back shares for 5+ years.
Just face reality, Preferreds WIN. They get converted at or near Par (4-5x from current prices), and then they get to ride into the sunset as Commons on their way to $1,000/share as per the Average Joe Plan.
#PreferredsForAJP
Wait and see
I just hope the dilution isn't too much for existing Jr. Equity (Commons) to stomach. Would hate for Capitulation and Cancellation to occur. The dreaded 2 C's
#SayNoToAverageJoe
Preferred to Common Conversion makes the most sense. It eliminates a lot of issues with regard to existing Preferred dividends and allows the GSEs to issue new Preferreds at a lower rate more in-line with current interest rates.
The only people arguing this shouldn't occur are a few Average Joe's that have already created a lot of issues for existing Common shareholders. Everyone else realizes why this is the best idea and why it will likely be rolled out shortly after the proposed capital framework is unveiled.
#AverageJoesForMoelis
The Single Security is coming sooner than expected. New shares to be issued? Existing shareholders seem awfully concerned.
FHFA takes another big step toward single security for GSEs
https://www.americanbanker.com/news/fhfa-takes-another-big-step-toward-single-security-for-fannie-mae-freddie-mac
Not sure Hensarling/DeMarco would be good for Commons. That would basically signal Receivership and then Preferreds are a much better buy.
With Commons capped around $3-5 for the foreseeable future (unless Moelis is the Plan that is picked), then I think most agree Preferreds are the safer and smarter investment choice.
#AverageJoesForMoelis
Short at $2 worked like a charm though. Not sure who's more wrong, those that continue to hold in blind faith that the Government will do the right thing, or those that continue to question the potential outcomes and their likelihood of being positive for existing shareholders.
Time will tell, but it seems most of the AJ's have lightened their positions considering recent events.
#SayNoToAverageJoe
Hensaring/DeMarco to take over FHFA? Commons getting Cancelled?
"There is speculation that Hensarling or DeMarco might get the [FHFA Director] job. That would be the final insult to add to the injury inflicted on mortgage markets, taxpayers, and GSE shareholders.
At this tenth anniversary, there is not much to celebrate."
New article from Investors Unite: http://investorsunite.org/ten-terrible-years-and-a-prelude-to-more-of-the-same/
Hensarling and DeMarco both spell the end of shareholders rights. If either of them take over the FHFA, they will finish what was started 10 years ago. Even as a Preferred Shareholder, this scares the crap out of me. I can only imagine how the Jr. Equity (Common) shareholders feel. Scary stuff!
#PreferredsForAJP (After Preferreds get Converted to Commons)
I agree, they'll stay sub-$2
#AverageJoesForMoelis
Existing Commons might not weather the storm.
I'm sure there will be new Commons issued if the existing ones get Cancelled
#SayNoToAverageJoe
The Ban is still in effect, even today:
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/04/AR2005050402375.html
GSE employees have been forbidden from purchasing Common stock since the imposition of the Conservatorship. Very few employees remain that still own stock, so it's a negligible amount of individuals and no one in government could care less about that small group of shareholders.
Hence, no one cares ... not even McFly
#SayNoToAverageJoe
Only shares that could be Cancelled are Commons.
ALL CAPS DOESN'T MAKE YOU RIGHT!
#AverageJoesForMoelis
Preferred shareholders pretty much win on any timeline. Life is good being a Preferred Holder. Don't get left holding the Bag of Commons.
#SayNoToAverageJoe
1-for-100 reverse stock split!? That would be devastating. Certainly in the realm of possibility though.
#AverageJoesForMoelis
That would be a lot of dilution
Did Judge Steele even show up? Seems he was present, but silent. He's a good-for-nothing low-life just trying to capitalize on legal fees. What a disappointment he turned out to be.
Ahh well, another legal loss. It's becoming more and more evident that Moelis is the only way shareholders ever see any type of monetary gain from this investment. Today's oral arguments completely change the investment outlook for GSE shareholders.
Anyone still holding Commons at this point is 100% gambling with their money
#AverageJoesForMoelis
Dang, the FHFA Lawyers completely destroyed us. This is an easy 3-0 victory for the Government. Back to the drawing board!
All eyes point to Moelis being the only favorable outcome for shareholders now. All other roads lead us to .0001 on the grey sheets.
#AverageJoesForMoelis
Is the merger back on? Considering prices are near parity, it would be safe to assume the Market Makers have kept the price of both GSEs as close as possible to make way for the merger.
And with the price bleed repeating, I imagine we'll see another round of pumping over the weekend including Merger, Up-listing, and the usual.
#SayNoToAverageJoe
Great news for the Mortgage Bankers Association and the newly formed CSS. Unfortunately, existing shareholders will never see a penny from this arrangement.
It's truly an honor! Happy to bring some balance to the irrational exuberance that we frequently see here.
Let's all hang tight together and hope the Government decides to start the capital retainment process and the capital raise (~$100B). We'll figure out everything else from there.
I think we're in for a tumultuous Q4. Stay strong #Fanniegaters
Sweeney's Dismissal expected in January. Then it's over for us Average Joe's. That'll be the final nail in the coffin. The Statute of Limitations will have long passed.
Then, the Government gets all of the GSE's profits in perpetuity for infinity and beyond. See you at .0001
#SayNoToAverageJoe
Big dump at the close. More bad news coming? Something probably leaked.
I'll buy some in the $1.40s next week or the following. Rinse and repeat -- those are 2 of the 3 Rs, and the only ones we're going to see any time soon. Keep on selling the pops, easy money!
#SayNoToAverageJoe
We all know that's not going to happen, so there's no need to speculate on that
I would be more concerned about the internal memo stating they plan to convert Sr. Preferred to Common along with the Warrants. That will be a true double-dip and would be devastating to existing Common shareholders equity. So they get the full loan back, plus 10%, plus 79.9% of the GSEs, plus another $100B in Sr. Preferreds that will convert to Commons? Ouch!
Forget about the 10% interest rate, focus on the real Common-killers.
Both GSEs are right around the 10% moment. So the Treasury doesn't have any ill-gotten gains. If they reversed back to the original agreement, then the GSEs would be owed nothing (or very little) and they would still need to raise ~$100B to become adequately capitalized -- which would be required to exit Conservatorship.
And yes, there will be lots of money lined up regardless of what happened to existing shareholders. Wall Street money could care less as long as there are some reassurances put in place that what happened won't happen again.
Anyone else think we see -33% on Dismissal from Sweeney? We could re-buy a lot more after her ruling if we sell now.
There are some tough decisions ahead considering all the tax-loss selling that's likely to occur in December.
#SayNoToAverageJoe
I see a lot of uncomfortable investors here, but it seems we can all agree on Moelis now.
I'm glad we've all come together and shared our endorsement for the Best Plan.
#AverageJoesForMoelis