Thursday, October 02, 2014 11:58:12 AM
Oct. 1, 2014 8:49 AM ET
Summary
•The ruling revealed that the government is following all of its laws and will be revealing Fannie and Freddie to private shareholders.
•The government is signaling that the warrants are going to be cancelled for anyone who actually reads filings and understands what is going on.
•No takings have occurred yet. Another amendment is to follow. The entities are in conservatorship and not receivership. The stock continues to trade.
Have you been assuming that the Third Amendment will not be amended? Me too! That's why you need to read what I am about to say to make sense of what I am pointing out as the biggest win for common shareholders that I didn't know about until a few hours ago! The Third Amendment is a great thing! It ended the 10% interest payments!
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Treasury agreed to a net worth sweep in exchange for
eliminating the cash dividend equivalent to 10% of the GSEs' liquidation preference
I would like to thank Frank Fosco for helping me write this article. He has shown me the light and the truth. This whole situation is absolutely straight forward for anyone reading court filings. The filing reads:
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But, just as there was a Third Amendment, the Court cannot definitively say there will be no Fourth or Fifth Amendment
This is relevant in the context of:
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But the plaintiffs cannot overcome FHFA's sweeping congressional mandate with conclusory statements regarding the Third Amendment's effect on the plaintiffs' prospective-and not present-rights to dividends and liquidation preferences
Most importantly do not forget:
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A claim is not ripe for adjudication if it rests upon 'contingent future events that may not occur as anticipated, or indeed may not occur at all.'
The Warrants Will Be Voided
This is going to be crazy. This could be a 100-bagger from here in my lifetime. I do not know how I missed this. The truth is that if this went the other way, the stock would be worth $20-$50. This way is so much better for the commons!
Ackman's valuation with the warrants in play is $20-$50. If you back out the 80% dilution, you quickly get to $100-$250. Odds are that they will be recapitalized by way of some sort of dilutive offering on their way out of the gate instead of through earnings, but the monster upside is inescapable.
The Stock Continues to Trade
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Indeed, GSE shares are traded daily on public over-the-counter (OTC) exchanges.
The court rules that it agrees that Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are not in receivership. They are in conservatorship. The conservator has not breached its fiduciary duty as it has not paid back in excess of that which it has borrowed with interest. Therefore there is no grounds for a takings claim, yet. Now, that is obviously subject to change in the future in the event that they continue to not follow up with another amendment and the businesses do end up paying more than they borrowed.
As Richard Epstein points out eloquently and I find entirely agreeable:
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By the end of September 2014, it is possible that the payments under the August 2012 Third Amendment to the PSPAs will be in excess of the 10 percent annual dividend currently payable under the original agreement on the senior preferred. In other words, the takings by the government will exceed the $188 billion previously advanced by U.S. taxpayers to Fannie and Freddie. Within in a short period of time thereafter, the total payments are likely to exceed the amount of the advances plus interest. What happens next?
The Fourth Amendment Will Come
This means that there will be a Fourth Amendment that will follow the third that will change the flow of profits once the government is paid back from the government to private shareholders. The government is doing its job. I've been wrong all along in my wild accusations because I interpreted the Third Amendment as the end all be all. There will be a Fourth Amendment. The Fourth Amendment will be the driving force behind ending the conservatorship as the GSEs are returned back to stockholders.
http://seekingalpha.com/article/2533645-fannie-mae-ruling-means-ackmans-valuation-is-now-100-250
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