Replies to post #680897 on Fannie Mae-No Politics (FNMA)

[kthomp19]

What about hedging for the possibility that the junior dividend doesn't kick in for years, is found by the courts to be retroactively non recoverable and that the common shareholders price for whatever reasons exceeds or greatly exceeds the junior shareholders price?

I just don't think that's a realistic possibility, only anti-junior pref wishful thinking.

1) The commons have zero economic value while the juniors are impaired, i.e. while the seniors still exist. If the seniors disappear, the juniors are worth full par even with divs off.
2) If the juniors are not converted, their divs will have to be reinstated at the time capital is raised because nobody will buy new common shares that don't have immediate dividend prospects. FnF are stable, utility-like companies, not zero-div growth companies.
3) Any outcome in which the juniors stay below par for years is also one where the commons stay below $5, and probably below $3. Retaining earnings alone is not going to meaningfully reduce the size of a necessary future capital raise (even with lower capital requirements), and since FnF's earnings historically don't rise all that quickly (earnings in 2020 were distorted for several reasons), new investors will likely demand a similar percentage of the overall equity even if a capital raise doesn't happen for several more years. The specter of that dilution will be enough to keep the common share price down.
4) I'll be rich if the juniors hit par. If I'm wrong and the commons end up having a greater return I will be just as rich. Conversely, if I put a significant chunk of my FnF investment into commons to chase even greater returns, I run the risk of losing a large chunk of it if, say, the seniors are converted to common and crush the existing commons.

Do you have any links for the 9th and 11th Circuit cases that found for the government on the ultra vires and/or anti-injunction and/or Succession Clause issues?

I had the circuits wrong. The Ninth and Eleventh were cited by Willett in his en banc opinion as agreeing that only non-ultra vires actions by FHFA are barred from judicial review by 4617(f).

One circuit court to say that the NWS was not ultra vires was the Sixth Circuit in Robinson v FHFA, page 15:

After considering all of Robinson’s arguments, we conclude that Robinson has failed to demonstrate that FHFA exceeded its statutory authority by agreeing to the Third Amendment. Her claims against FHFA, therefore, are barred by HERA’s limitation on court action, § 4617(f).

Another is the Seventh Circuit in Roberts v Illinois, page 22:

With regard to the Agency, our review is squarely fore-closed by 12 U.S.C. §4617(f). That provision bars judicial in-terference with the Agency’s statutorily authorized role as conservator.Because the Agency acted within its powers as conservator in agreeing to the Preferred Stock Purchase Agreements and the Third Amendment, declaratory and in-junctive relief cannot run against it.

The DC Circuit did the same in the Perry case on page 37 (the same case in front of Lamberth):

Because the Third Amendment falls within FHFA’s broad conservatorship authority under the Recovery Act, we must enforce Section 4617(f)’s explicit prohibition on the equitable relief that the institutional stockholders seek.