Sunday, August 21, 2016 6:24:31 AM
While I find it incredulous that breach continues to be offered up in the victory party anticipated by pro-plaintiff support, I am even more confused by the apparent belief that such a decision would actually be good for common shareholders. Any court action delivered that cures a breach of contract for unpaid preferred dividends could only involve one outcome: restoration of preferred dividends. And it would stand to reason that any money returned by UST to the GSEs that was not required to maintain solvency, would have to be stipulated as a contractual obligation to preferred shareholders. Any money used by either FHFA or the GSE's management teams upon any effective release from conservatorship, for other purposes beyond preventing insolvency, would simply be a NEW breach of the same contract if not spent first on PFD.
So... a successful Appeals ruling on breach of contract basis would require preferred dividends to be paid before any recapitalization could be funded as long as no insolvency is created by such payments. No recapitalization = wind down. In a wind down, no common shares are cancelled, so there is no taking. They just dwindle down into nothingness over the next 30 years as the old mortgage contracts get paid off. The lack of capital does not create an insolvency, it only limits the amount of money available to invest in new mortgage inventory to whatever remains AFTER preferred dividends are paid and statutory reserve minimums are kept in check.
I can't see how this outcome would send common share prices to the moon. More like the boneyard for faded glory stocks like Blockbuster. Looks to me like Hamish Hume has delivered a death knell for common stockholders. Poor Ackman just can't seem to buy a break, although I think his Valeant (where I, too, remain hugely invested) strategy will pay off, over time, far better than FNMA commons.
JMHO.
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