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Agree that it is extremely unlikely that FnF are going away
But their operational continuance doesn't necessarily guarantee current shareholders continuance
Two wild cards that remain are the courts (fat lady hasn't sung yet) and warrants (the gov't has LOTS of uses for $100B+ additional windfall)
The fire sale reference was in comparison to what existing shareholders "should" have received if the 10% was 5%, the NWS was canceled and the warrants were repurchased at par. That's not going to happen. The gov't will make plenty of money if they sell the warrants at $10 pps or even $5 pps - again, fire sale prices versus pre-cship value for sure. Wall Street will make a small fortune placing the warrants and recap shares. They WILL make it happen.
bcde, yes, the Moelis plan primarily depends on "new" investors funding the recap requirement AND buying the warrants as you astutely note. Many have speculated that potential investors would never commit without a reversal of the NWS, fearing the govt might do it again. However, institutional investors love road kill more than anything else, and I believe enough of them will jump at the (inside?) opportunity to buy shares that have first been diluted to near nothing. And, yes, securing hundreds of billions in new capital is a big lift, but the world-wide capital market (including sovereign funds) is HUGE (est. at $118T) and should be able to handle the requirement, attracted by fire sale price (courtesy of current shareholder) in two of the largest/most important financial institutions in the world. Either we get a save by the courts or we get royally screwed (and I think Moelis is a screw job). Thanks for all of your posts.
10+ years August 2008
bcde, you and others raise many legitimate points based on FAIRNESS but, to date, the gov't has not given us ANY reasons to think fairness will guide their decisions. To the contrary, they have openly lied and exposed their scheme to FULLY steal FnF from shareholders - and, for the most part, the courts have supported them, giving them the cover that all is within the rule of law. I've got 50K pre-cship commons at $6, but I'm trying to be realistic ... Trump AND congress are DESPERATE for money (huge deficits, the wall, etc.) and WS remains FULLY committed to take as much business from FnF as possible. Trump will gladly crush a few thousand shareholders in exchange for bragging to tens of millions of voters that he "saved" FnF from ruin and generated hundreds of billions for tax payers while doing so. Remember, truth absolutely does NOT matter to Trump - and he will certainly claim this is the GREATEST turnaround and protection of taxpayers EVER! Yes, there is some like between the value of the warrants and the fate of common, but without reversing the NWS, the gov't already has a home run, so getting much less on the warrants could be very acceptable. Either the courts given us some leverage or commons may not see much upside from here. Remember, possession is 9/10th of the law ... cheers
Totally agree. The fate of FnF is the definition of uncertainty. My only faint hope is that the lawsuits somehow favorably change the trajectory of the outcome, even if only a bit. I will be watching the gov't Dec 19 filing in Wash Fed case under Sweeney. Meanwhile, this has been a 10+ year lesson that our own government (R and D's alike) can lie and/or steal in broad daylight, possibly with impunity. Not the first time ... Tea Pot Dome, Keating Five, Iran Contra, Pentagon Papers, etc., etc.
How can they revoke the charters and enable many new competitors without significantly reducing the value of the warrants? We know the thieves on WS and the UST are very clever, but are they that clever?
Potty, I share your caution on assuming anything is a done, or even favored, deal - though, without a significant court victory, the momentum is clearly with the thieves ... BTW, re corruption, the D's better be careful what they look for as the NWS was started under Obama just before FnF were about to be historically profitable - while the cship was, ostensibly, done under the infamous "cloud of war".
Do you think you sent yourself the crystal ball from the future (using Amazon Prime Time shipping)? BTW, I know you already have a whopper of a career and look to hit the jackpot with FnF, but really you should be a writer. Your Kurt Vonnegut style would be a smashing success!!
Isn't the Wash Federal suit challenging the original cship and NWS? Sweeney to rule Dec 19 on P's motion to dismiss. Not sure what FHFA decisions will be reviewed. Also, not optimistic but should be informative to see Sweeney's ruling, especially given her knowledge of 11K withheld docs.
a broom?
stock, the only lawsuit that I am aware of that challenges the cship itself and the original PSPA/warrants is Washington Federal. Final briefs on D's motion to dismiss are due Dec 19 and then presumably Sweeney will rule at some point. If she dismisses the case, I don't know what else would challenge the warrants - unless you are saying the exercise of the warrants will trigger new lawsuits? ... but does statute of limitation start from when the warrants were issued or exercised (when the takings occurs)?
- Congress is TOTALLY addicted to the money
- The WH is also - otherwise DT would have been thrilled to blame (and undo) BO's NWS
- Tax cuts have already exacerbated serious deficits - which are likely to get much worse
Without a major court win, the only other reason for Congress and WH to give up the NWS would be the warrant windfall. They could use the windfall in 2019, but would it be much better optics for the Repub to pull the trigger in 2020 before the election (and use windfall to pay for the wall (sorry Mexico))? Regardless of when the warrants are exercised, they WILL be exercised barring a major victory in Wash Fed case.
rick, your burger king perspective is priceless; as long as you keep writing, all will be well
wayne, thanks for reminding me to check the still pending suits. Washington Federal challenges the original cship, warrants, NWS, etc. and final briefings on D's motion to dismiss are due to Sweeney by Dec 19, 2018. The suit is filed on behalf of all those who held common and preferred shares prior to Sep 5, 2008 and is seeking compensation for a taking without due process under the 5th amendment. It will be interesting to see when/how Sweeney rules on the motion, especially given her role/knowledge in the discovery process.
As a layperson, I have always felt that a takings claims was the only way to get around the anti-injunction clause of HERA. It also recognizes that the government has the right to effect a taking for public purposes, but that "just compensation" is due. That approach avoids taking issue with a cship decision made "in the fog of war" ... and as long as it can be established that FnF were NOT worthless at the time, then a takings occurred.
Having said all that, if Sweeney grants the D's motion to dismiss, then I think common will get diluted below 5% or even less after the warrants and depending on how/when recap is effected (including conversion of jrpfd). The rational side of me says switch to preferred, but the emotional side says F-no ... and to hold on to my common to the bitter end. Really appreciate the replies - and I will hold at least until Dec 19 to see what the final brief looks like.
Is it just a coincidence that many are expecting an ~5X return (from current levels) for both jrpfd (back to par) and common (after warrants and recap dilution)? And if that is even roughly true, I have to ask again why some prefer common? Still thinking about converting my 50K pre-cship common shares to jrpfd as it seems that without a miracle from the courts, commons are really at serious dilution risk. tia for any replies
cmdr, assuming your comment is directed at my projections ... you may be correct, raising $100B+ is a big lift (though not impossible), but in either case, my point is that Ackman's $23/share figure doesn't account for recap dilution - and the impact of that could be worse than the warrants. Investors will know its coming and they will run the projections to take that into account. Upside for common could be $6, not $23 (and I say that as a pre-cship owner of 50K shs.)
Below is a simple (and possibly incorrect) look at how recap dilution would impact (lower) Ackman's projected $23/share figure. I used his $15B earnings and 14X earning multiplier and assumed $100B recap needed (low?) raised a price ranging from $4 - $15 per share. Post dilution/recap price ranges from $5.74 to $11.50 (far right column) - though I wouldn't think they could raise funds above $8/share as the resulting PPS would be lower than that. Happy to revise if folks can point out any errors. Tx
$15,000,000,000 Estimated Annual Earnings
14 P/E Multiple
2,320,000,000 Existing Common
9,280,000,000 Govt Warrants
11,600,000,000 Total Post-Exercise
$100,000,000,000 Recap Needed
Recap
$/Share New Shares Total Shares EPS PPS
4 25,000,000,000 36,600,000,000 $0.41 $5.74
5 20,000,000,000 31,600,000,000 $0.47 $6.65
6 16,666,666,667 28,266,666,667 $0.53 $7.43
7 14,285,714,286 25,885,714,286 $0.58 $8.11
8 12,500,000,000 24,100,000,000 $0.62 $8.71
9 11,111,111,111 22,711,111,111 $0.66 $9.25
10 10,000,000,000 21,600,000,000 $0.69 $9.72
11 9,090,909,091 20,690,909,091 $0.72 $10.15
12 8,333,333,333 19,933,333,333 $0.75 $10.54
13 7,692,307,692 19,292,307,692 $0.78 $10.89
14 7,142,857,143 18,742,857,143 $0.80 $11.20
15 6,666,666,667 18,266,666,667 $0.82 $11.50
1/3 average volume ... so only 1/3 crappy day
rj, really appreciate the update
cmdr, also appreciate clarifying that ron's partner did the talking
Potty, I'm with you ... I just wondered what date will be used to determine the valuation for just compensation under a takings claim (i.e. pre/post cship). I also wonder if I'll be alive to see that day. cheers
You are driving down the road when you see a sign that says "Fannie Mae's House of Pleasure, 10 Miles on the Right". Hmmm, you think, I work hard and deserve to check out some of the best "assets" around. Soon you see another sign that says only 5 miles to go, then 1, then you arrive. You are so excited, you bolt into the house where you meet Fannie Mae. "Hey there big fella, ready to have some fun? We've been conserving our world class assets just for you". You plunk down your money and then you're blinded folded - Fannie tells you the element of surprise really does the "trick". Fannie leads you through a door and tells you to remove the blindfold when you hear the door close behind you. Click. You are so juiced you can barely untie the blindfold - but when you do, you realize you're standing outside in front of a big sign that says "Congratulations! You've Just Been Screwed by Fannie Mae!!" ...
RuddG, thanks ... if the conservator has stepped into the shoes of the directors and shareholders, wouldn't that include the jrpfd (or, as quasi-debt, they remain independent as reflected in the remand to Lamberth for breach of the jrpfd contract)? tia
First, thanks for those who responded to my question about jrpfd, but ...
... what actual evidence do we have that any rrr plan must be acceptable to the jrpfd's? Given our (really poor) track record, how could it be the threat of law suits, and if it is, why doesn't that same leverage apply to commons ... and the suits that challenge the cship itself? tia
to the jrpfd holders ... assuming you get back to par, 1) will your shares then be unilaterally converted to commons ... and 2) will that occur before the warrants are exercised ... and 3) before the recap dilution occurs? basically, if commons are going to be diluted to far less than 20%, will jrpfd get dragged along as well?
Cmdr, agree, govt could just let it ride by appealing any negative decision - - and even use the (implied?) threat of rship to negotiate with P's. Bottom line ... all the evidence says govt is in-it-to-win-it and will use whatever tactic they can to achieve goal. Time (i.e., continued draws) are on their side and they (govt) has deeper pockets that P's. FnF will most likely survive, but terms of rrr are far from resolved.
won't it be rich if the court rules that awarding damages to a deserving plaintiff will restrict the conservator, but sending $200B to Treasury didn't ...
DOG days of summer ... Daily Outsized Gyrations!
To bad we can't weaponize 4617f, we'd be invincible! But I digress ... does anyone else think that if multiple courts can find that the single word "may" authorizes FHFA to do basically anything, that they (the courts) will say that the NWS's 100% of everything IS a rate and, therefore, P's case will be dismissed? Honestly, I feel like our only judicial hope is a takings suit which should make 4617f moot.
bcde, really appreciate all of your posts. Re Mr. Levin, I occasionally try to listen to him, but all too frequently find his passionate outbursts sounding more like caustic, divisive and inflammatory vitriol than well-reasoned talking points. Besides, would he possibly prefer breaking up FnF given his hate for big government? Sadly, the revolving door between Treasury and WS gave us the cship with the punitive 10% interest, 80% warrants and NWS. And, seemingly, MSM appears almost totally complicit. The whole thing makes we wonder just how many WS, elected reps and others shorted FnF after their little insider tip from the Eton Park meeting. I generally hate conspiracy theories, but you gotta wonder given the totally f'ed up narrative that has been sold to so many, including judges.
you mean sandwish ... : )
Will jrpfd be converted before or after the exercise of the warrants? Conversion terms are always adjusted for splits, but I think not for the exercise of options/warrants. I would think anyone who owns jrpfd would want to know the answer to this question.
Also, fwiw, as a pre-cship owner of commons, the whole cship + NWS has been the most incredible F-job EVER ... put into bogus cship with guns to our heads, punitive 10% div rate and 80% warrants, forced to buy billions of bad loans AT PAR held by TBTF banks, totally bogus write-offs of DTA, then NWS as returning to profitability - all of which will force further dilution to recap WHICH WOULD NEVER BE NEEDED IF WE HADN'T BEEN RAPED IN BROAD DAYLIGHT IN THE FIRST PLACE. So, yeah, I think Moelis sucks, big time. I'd rather risk going down in flames in the courts than agree to Moelis. But, sure, its all been "legal" despite decades of cship precedent to the contrary ... so I guess that means we're still the shinning beacon for the rule of law. Totally. F'ing. Disgusting.
Yanks, first, I was replying to your incorrect statement about the credit to paid-in-capital. Re the debit to cash, you are also totally wrong. To quote the article:
In the example, cash is debited by $130,000, the result of the $13 issue price per share x 10,000 shares issued.
Or as you might say, this is Reading 101.
At this point, probably best we just ignore each other. Good luck to you.
Yank, you may have mis-read the example. It stated that the par value was $10/sh and the 10,000 shares were issued at $13/sh. So Common Stock was credited $10/sh x 10,000 sh = $100,000 ... and paid-in-capital was credited ($13/sh issue - $10/sh par) x 10,000 sh = $30,000. Paid-in-capital is ALWAYS credit for the amount ABOVE par. In fact, paid-in-capital is frequently also called "additional paid-in-capital" and even "paid-in-capital in excess of par". Hope that helps.
Really admire all of your efforts, but I also agree with navy that the ACCOUNTING won't matter as long as the ECONOMICS are broken.
Yanks, there are hundreds of sites explaining that paid-in-capital is ALWAYS credited for net proceeds above par. Here's just one:
https://www.accountingtools.com/articles/2017/5/17/stock-accounting
The Sale of Stock for Cash
The structure of your journal entry for the cash sale of stock depends upon the existence and size of any par value. Par value is the legal capital per share, and is printed on the face of the stock certificate.
If you are selling common stock, which is the most frequent scenario, then you record a credit into the Common Stock account for the amount of the par value of each share sold, and an additional credit for any additional amounts paid by investors in the Additional Paid-In Capital account. You record the amount of cash received as a debit to the Cash account.
For example, Arlington Motors sells 10,000 shares of its common stock for $8 per share. The stock has a par value of $0.01. Arlington records the share issuance with the following entry:
Debit Credit
Cash 80,000
Common Stock ($0.01 par value) 100
Additional paid-in capital 79,900
Yanks,an IPO (or any other raise) is a CASH event. If a firm raises $100M net, the entry is (assuming 100M shs of common at $.001 par):
Assets:
Debit: $100.0M Cash (net proceeds after underwriter fees, etc.)
Equity:
Credit: $ 99.9M Paid-in-Capital (net proceeds less par value x # of shs)
$ 0.1M Common Stock (par value x # of shs)
So Assets = Liabilities + Equity
$100M = Liabilities + ($99.9M + $0.1M)
As others have said, you can't record against cash unless you receive or disburse actual cash. That's it; no exceptions.
BTW, if warrants can be exercised any time, than any holders of common at that time will be diluted 80%. So, 1) if jrpfd get converted before warrants exercised, the common shares they receive will be diluted 80% ... is that worse (for them) then if they had remained jrpfd and gotten par (at some point) and 2) if new shares must be sold to recap, I doubt those buyers would want their shares diluted 80% by Uncle Sam, so will the warrants have to be exercised prior to recap ... or will the sp of the recap shares simply reflect the expected dilution?
Not sure my questions warrant any concern if I'm just being dilutional ... : )
kthomp, really appreciate the reply and advice on jrpfds. FWIW, I also agree on the non-cash impact of jrpfd conversion (not redepmption). No cash will change hands, but equity will be adjusted to reflect the conversion from jrpfds to common: i.e., turn in X type of security and get Y type of security at the stipulated exchange ratio. Thanks again - and lets hope the law suits pose enough of a threat to keep current shareholders from getting diluted to oblivion. cheers
A few comments:
- first, many thanks to kthomp, yanks and other who have read a ton of materials and crunched many numbers. All of it is greatly appreciated
- next, I bought FnF common just days before the cship ... which was also just days after our trustworthy gov't told us they were sound
- I have held on because I believe in the rule of law (maybe stupidly), but I'm realizing that I probably should swap some of my common for jrpfd as a hedge. Problem is, I don't know squat about comparing/buying the jrpfd - SO IS THERE ANY ADVICE ON WHERE I SHOULD START IN CHOOSING WHICH JRPFD's TO BUY? TIA for any advice (btw, I invest through Schwab and not sure if I would trust their advice on a matter like this)
- does anyone know if the warrants get 80% of pre-RRR commons, or post-RRR. If the former, would that make the gov't more sensitive to diluting themselves if the RRR is draconian for the common?
- Finally, there appears to be 4 possible sources of dilution: warrants, recap, jrpfd conversion and, god forbid, srpfd "repurchase". We have been crushed in the courts, but those efforts are far from over and I find it a bit difficult to believe a RRR that dilutes common to likely less than 5% would be possible while all the existing suits remain in play.
cheers, and thanks again to all the great poster
Below Average Joe