Replies to post #596632 on Fannie Mae-No Politics (FNMA)

[action8101]

He works for a hedge fund holding Fannie Mae prefs. Probably employed by Dick Bove.

[kthomp19]

Are there scenarios in your mind where the common shareholders will greater returns especially because you believe they have greater restructuring risks if I understand you correctly?

Not really. I think the market is greatly overvaluing the commons right now relative to the prefs, so much so that the commons really don't have greater upside than the prefs. Obviously the market disagrees, but that's my opinion right now and I'm sticking to it.

It may be a philosophical point about whether or not the sanctity of markets and the rule of law only apply to debt but not equity but since we are talking about public/private partnerships where future politicians and judges can bend rules dont you think the slippery slope of bad predecedent and political expediency is one the likes of Secretary Mcnuchin is wise enough to avoid?

If the government's past mistreatment of past shareholders (which don't completely overlap with current shareholders) is enough to keep new investors away then the whole recap and release train gets derailed. The government's past misdeeds cannot be retroactively changed.

The main thing I disagree with is that the government treating current FnF shareholders well will reassure SPO investors. From the SPO investors' point of view, shareholders from 2008 and 2012 will have had to wait 9-13 years to be made whole and only because of many costly lawsuits.

You brought up the GM investment where the UST agreed to a deal where it would never make money but did so to save jobs and the auto industry even though ultimately they loss approximately $11 billion. Why not keep the value creation in the equity since the UST will retain 80% any way and preserve the sanctity of capital markets.

I only brought up GM as an example where debt (as opposed to equity) holders were screwed. The government's treatment of GM's debtholders is what threatens the sanctity of markets because it upended the traditional capital structure. It doesn't matter how much money the government gained or lost.

Are you implying that current FnF shareholders not gaining a bunch of money from here would somehow threaten the sanctity of markets? I disagree with that sentiment entirely, regardless of whether it is what you meant.

Finally why would the UST use there position in the Senior Preferred to creat value vs maximizing the value of the common and actually pull capital and cash out of the GSE's?

Dont you think Trump would like the headline - Obama lost $11 bn on bailing out GM but I made $50 bn for the US Taxpayer through common stock sales while making the US housing system safe and sound for future generations?

My point was that Treasury can make a lot of money off its exit from FnF's capital structure (via how they deal with the seniors and warrants) without maximizing the value of each common share, and by extension without maximizing the value of the currently outstanding common shares. Converting the seniors to 99.99% of the commons and cancelling the warrants is one way of doing so. This can be done in stages so as to avoid the 80% balance sheet consolidation threshold.

If the UST/FHFA comes up with a plan to maximize cash proceeds for UST via future stock sales - wont the existing common shareholders benifit accordingly?

Not if one or both of the following two things happen: senior-to-common conversion and junior-to-common conversion. Each one means more money for Treasury but less for existing common shareholders.

Again - are you taking the position that common shareholders can not achieve equal or better returns than owning JPS at current market prices?

Yes, I do take that position and I like the way you present it. See my second sentence above for a short explanation of why I think this is true.