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kthomp19, good to see you still active here. Question for you: if legal cases all fail, what is there left to protect JPS? Is there a worst case scenario where JPS go to zero, or is this just a question of when they get par(ish), in your view? TIA
What happened to Boyle Capital? They wrote good letters on F&F situation, but after the LA not a peep out of them, and they've put their investment letters on the website behind a password.
kthomp: why get into the weeds when everything boils down to whether we get a favorable scotus ruling or pre-scotus settlement? everything else seems to me just noise. future FHFA+T can amend away everything in the LA so it should be taken w/ a grain of salt... unless of course you believe yellen has secretly agreed to continue the path set by mnuchin.
KT: Tim Howard said in his blog that converting Seniors to commons just dilutes commons and doesn't add capital; yet one can easily Google examples of TARP senior preferreds converting to commons to boost tier 1 common capital.
Can you please explain this? Thanks
Thanks for your response. I fully agree that there is strong incentive to offer generous conversion for fixed rate prefs. My question was about the variable rate prefs, like fmccm. Why even bother converting these, when F&F can keep them at a trivial "CMT rate + .10%" (http://www.freddiemac.com/investors/pdf/0101cir.pdf)?
holden/kthomp: i recall reading that treasury must clear all legacy prefs before they can issue new prefs. Is there a technical reason for this? What's to prevent T from converting all fixed, leaving variable, and issuing new non cum prefs with lower fixed rates? The only reason I can think of is that converting will allow Ps to drop cases, without which it wouldn't be feasible to raise new preferreds.
Thanks in advance
were you on the call as well?
Seems like bad news has leaked out? FNMAS and FMCKJ are selling off on big volume; someone wants to exit quickly. I haven't seen this kind of selloff on *no* news in a long time.
In hindsight, I feel my expectation for pre-election action should have been tempered given how long ago Calabria telegraphed this.
wow, had i seen this earlier I would have also not expected pre 12/18 settlement/4th A. Thank you for providing the reference.
Are you considering selling now that time has run out for a settlement prior to oral arg? I think you previously said this questions whether admin is really serious about getting this done
kthomp19 if the next two weeks go by without a 4th amendment and oral hearings happen as planned, do you still think you'd lean towards exiting your position?
i find it useful to ask people what they would do if x,y,z happens, and then ask again after x,y,z does indeed happen to see if they follow through or rationalize changing their mind.
kthomp: im sure you read layton's latest. imo its very humbling and sober eyed on the prospects of a resolution in this term. craig philips also admitted recently that its unrealistic to expect resolution in lame duck period given covid related issues taking precedence. there are no more credible people when it comes to gse reform than these two, with the exception of mnuchin himself. how do u continue to rationalize a long position here?
kthomp: how do you think about principal-agent problem as it relates to mnuchin + calabria?
it seems not unreasonable to believe mnuchin wants to take collins through to SC decision and actually *lose*, so that it creates the ultimate political cover to pursue sane financial reform. yes, it will get messy, but thats a problem for principals (investors), not agents (politicians). in other words, what incentive does the admin have to settle? i really doubt reforming housing gets any political points, whereas enabling hedge funds to profit can clearly hurt with the election.
If I had to guess I would go with after, because the resolution of #1 and #2 will affect FnF's capital levels depending on how they are done.
i dont see how the resolution of #1 and #2 should affect finalization of the capital rule, which is supposed to be independent and stand on its own merits. can you elaborate?
further, capital rule can happen before election, but pspsa will likely happen after election to avoid political blowback.
Can you cite specifically how Bove has been self contradictory? I haven't read much of his stuff, but from what I've read he seems to have consistently argued for the prefs.
The no-div series (FNMAO, FNMAP) might not get offered a conversion at all, and that's why I don't own any of those series
This would leave the shareholder lawsuits hanging, though. Since Treasury can settle lawsuits by converting all preferreds to common, I fail to see why Treasury would prefer to offer conversion to only a portion of the preferreds? It's far simpler and cleaner to convert all, maximizing boost to CET1, and then issue fresh common and preferreds.
5m FNMAT just exchanged hands at a discount. I recall Pershing owning this series. Any thoughts on whether this is good/bad/neutral?
kthomp do you have a good guess on why calabria has been dragging his feet to release the new capital rule? It's been delayed more than once now, and seems for a strategic reason. perhaps he is trying to time it with the pspa amendment to avoid a situation where GSEs are technically critically undercapitalized, requiring mandatory receivership?
A recession can change everything, I’m sure acg would agree
Biden being elected is an even better outcome for FnF shareholders than Trump being re-elected due to Gary Hindes's influence.
this is grasping at straws. hindes tried and failed to influence biden when he was VP. biden will delegate these decisions to his cabinet members and hindes will continue to have no influence.
its 4th amendment/trump reelection or nothing.
who are their clients?
im not sure if even treasury knows the plan; far too many variables to account for.
fhfa and admin want this done
how does ACG get their info? i doubt they have direct access to calabria.
also, the problem right now is even if they want to get it done, current/coming recession takes priority so gse can gets kicked again
Before november or after?
theres a good chance mnuchin will be way too preoccupied w/ a full on recession to deal with the GSEs
that seems super unlikely. calabria has said repeatedly they are going to do a final PSPA amendment to remove the cap sometime this year. but my question is, does this necessitate a settlement? i think a settlement is going to take much longer than people think, as it requires coordinating with doj and a dozen plaintiffs.
does 4th amendment that removes 45bn cap necessarily require settling lawsuits?
kthomp19, just curious what do you view as the absolute worst case outcome for the preferred, and has to happen to get that outcome?
Do you have a bear case take for the short term? IMO i think most people are underestimating the possibility of craigs leaving being due to something negative for the outlook of treasury-fhfa agreement. most reactions ive seen, including ruleoflaw, was to contort this news to fit their (bullish) priors, without considering the bearish possibilities. this is how people get wiped out, like how glen did in his china stocks and FTR.
kthomp19, thanks for your contribution to the board, you have great posts. If I may ask, what is your background and are you involved in this professionally? You seem to have alot of time devoted to this. In any case, keep em coming!