tag:blogger.com,1999:blog-4815867514277794362.post6841817738389592231..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: The new GSE as zero meme – laying the assumptions bare – and a modest plan for ObamaJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger24125tag:blogger.com,1999:blog-4815867514277794362.post-7164377813466547552013-03-16T06:47:04.234+11:002013-03-16T06:47:04.234+11:00" If my math is right – and I think it is – t..." If my math is right – and I think it is – then the GSEs will appear solvent in time for the 2012 election."<br /><br />Nicely done!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-27074370897100149792010-03-23T09:10:02.857+11:002010-03-23T09:10:02.857+11:00I've followed your reports on the GSE's wi...I've followed your reports on the GSE's with great interest (very thorough job with this).<br /><br />Today, Sec. Geithner, answering a question posed after a lecture he delivered, reportedly said that on April 15 and in testimony he will give before Congress tomorrow (March 23), Pres. Obama would release questions to guide the debate over the future of housing finance. He added that the administration recognized two bedrock principles, that families need access to mortgages even in bad economic times and that the GSEs will not continue in their current form of shareholder-owned businesses with implicit guarantees. He also stated that risk-taking, capital adequacy, and solid underwriting are required in the mortgage market, and that Treasury and HUD will put out requests for comments on an overhaul of the housing finance system by April 15.<br /><br />Here are a couple of the juicier quotes:<br /><br /> “It should be clear that the government is committed to ensuring that the GSEs have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations.... The administration will take care not to pursue policies or reforms <br />in a way that would threaten to disrupt the function or liquidity of these securities or the ability of the GSEs to honor their obligations.”<br /><br />“Private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained.”<br /><br />It sounds like the administration wants to keep the GSEs in business, though this is all vague enough and early enough that it's hard to know whether they'd want to throw them into receivership first, how they plan to recapitalize the GSEs, and whether the GSEs have a sustainable business model without an implicit or explicit government guarantee. <br /><br />I wonder whether you have any thoughts on the implications of these remarks for the Freddie and Fannie preferreds.Allannoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-40098495028791292802010-03-13T03:49:37.973+11:002010-03-13T03:49:37.973+11:00does anyone have commentary on FNM common stock?does anyone have commentary on FNM common stock?B Walkshttps://www.blogger.com/profile/13428079363476989854noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75247193282508374372009-11-02T22:44:34.453+11:002009-11-02T22:44:34.453+11:00The fact that the government is even contemplating...The fact that the government is even contemplating the sale of tax credits is a sign that they believe the credits are worthless if held by Fannie (which needs taxable income to benefit from the credits). Goldmans would pay at most 25-50% of the intrinsic value of the credits so this would be a very bad deal for the shareholders if the company ultimately returns to profits. <br /><br />http://www.reuters.com/article/wtUSInvestingNews/idUSTRE5A107W20091102Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75619532909674873222009-11-02T13:16:01.424+11:002009-11-02T13:16:01.424+11:00great , thanksgreat , thanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-4070809039300569822009-10-31T05:27:32.670+11:002009-10-31T05:27:32.670+11:00thanks john --
this analysis -- actually mostly a...thanks john --<br /><br />this analysis -- actually mostly a reiteration of your previous analysis -- still leaves a few questions.<br /><br />first, what were the changes at FRE/FNM after conservatorship? were they pushed into making/insuring bad quality loans or was that the job of the FHA?<br /><br />second, it looks like the 2008 vintage is shaping up pretty poorly if you look at FRE's cumulative loss rates. clearly the recession is part of the problem here. any thoughts?<br /><br />third -- and this is where i've been banging my head against the wall -- it looks like the govt is kind of in a trap with respect to resolving their status.<br /><br />you could be right that the government is likely to let them earn their way out of the hole they are in, but there are other possibilities such as in-place recapitalization (the treasury could convert some of their sr prefs into common stock aka citigroup) or a good bank / bad bank split. both of these options could be positive for the preferred shares but neither would get them near par.<br /><br /><br />neither you nor anyone else i've read has gamed out these possibilities publicly and i would be interested in hearing what you have to say.babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-90534463379324542682009-10-31T03:56:22.070+11:002009-10-31T03:56:22.070+11:00What preferred shares of Fannie/Freddie do you rec...What preferred shares of Fannie/Freddie do you recommend buying?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-34100169447130588012009-10-31T02:29:10.108+11:002009-10-31T02:29:10.108+11:00John,
Thank you for the time. I have a few quest...John,<br /><br />Thank you for the time. I have a few questions.<br /><br />1) Given the redemption of the sub debt at a premium, doesn't that create a problem for wiping out the preferreds?<br /><br />2) Have you heard anything regarding the financial reform currently being discussed extending to FRE and FNM? <br /><br />3) If they wipe out the preferred doesn't it hamper their ability to recapitalize in the future? I sure would be less trusting. <br /><br />4) I have noticed that most people seem to lump all the equity together and I think that is a mistake because in the case of FRE and FNM the preferred was qualified for bank investment because of the implicit guarantee. While I don't think there is value in the common, I think there is value in the preferred, for the reasons mentioned above.<br /><br />I am concerned about the current legislation that could give authority to wipe out the preferred without consideration to what transpired with the sub debt being taken out at a premium to par. Anyone with legal background please feel free to reply also.<br /><br />Lastly, I am perplexed as to why the government has been so SLOW to reduce the rate on the senior preferred (current 10%). Surely there has to be an underlying reason. I mean, they do it for the banks but why not FnF? Any thoughts? It seems the government is trying to create insolvancy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69437203689365431212009-10-31T00:11:33.930+11:002009-10-31T00:11:33.930+11:00"Isn't the downside that many regional ba..."Isn't the downside that many regional banks may hold these securities? This a guess, not someting I have verified"<br /><br />Me neither, Jim. But lets assume that banks still hold 50% of the preferreds. Say $6B, which I assume has already been marked to market/written down. John's thesis is that in 5+ years time, the prfds CAN potentially be made whole.<br /><br />No argument about the precarious state of the regional banks, but I doubt that a potential recovery of $6B for bankers and hedge funds in 5-7 years is the foremost consideration of the politicians and regulators. Rather, my guess is that a)maintaining liquidity in the mortgage market; b) repayment of the gov't prfds; and c)some sort of meaningful reform of the GSEs trump the desire to see recovery of the prfds.<br /><br />Just my two cents.<br /><br />FlaneurFlaneurnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-21922469833869800832009-10-30T05:20:28.381+11:002009-10-30T05:20:28.381+11:00Flaneur,
Isn't the downside that many regional...Flaneur,<br />Isn't the downside that many regional banks may hold these securities? This a guess, not someting I have verified. But by wiping them out the government would be hurting those banks, while if their value returns near par, it is a hidden stimulus to those banks.Jimnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66303411595658429432009-10-29T23:36:30.246+11:002009-10-29T23:36:30.246+11:00On May 19, 2008 KBW had a Buy recommendation on Fr...On May 19, 2008 KBW had a Buy recommendation on Freddie Mac with a target price of $45 per share. Less than 4 months later the stock was 25 cents per share. Why wasn't that mentioned on CNBC?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-51552166274086567412009-10-29T14:49:50.759+11:002009-10-29T14:49:50.759+11:00John, was this piece put out before the U.S. housi...John, was this piece put out before the U.S. housing numbers release this morning? How do you reconcile your positive view of housing with these numbers and the numbers for delinquencies comming out of MTG recently. Thanks for any response.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-24900428801817745582009-10-29T11:13:36.791+11:002009-10-29T11:13:36.791+11:00John, thanks for that thorough analysis.
If it is...John, thanks for that thorough analysis.<br /><br />If it is not much to ask. Could you have some sort of graph where you compare monthly/quarterly your default assumptions versus the numbers reported by FRE?<br /><br />Some quotes of Peter Lynch on Fannie Mae<br />http://variantperceptions.wordpress.com/2009/09/10/voice-from-the-past-lynch-on-fannie-and-freddie-fre-fnm/PlanMaestrohttp://variantperceptions.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-74434178361822867392009-10-29T10:28:29.700+11:002009-10-29T10:28:29.700+11:00"The sensible course of action is to just wai..."The sensible course of action is to just wait. This is policy that can be delayed without any real additional risk to the government. (The government is already on the hook for the losses.)"<br /><br />John--What makes you think that? I would think the sensible course given the current path and political climate would be a good bank/bad bank-type solution. I.e., seize on the current insolvency to definitively zero out the common and preferred, and spin out the losses and re-capitalize a "Good" FnF as a viable going concern. <br /><br />Put another way, what's the downside of Geitner/Summers pursing the current path to it's logical conclusion? Wiping out shareholders (and the residual value of the Pfds on bank balance sheets)strikes me as politically more viable than sustaining the capital structure of zombie GSEs so that hedge funds can reap a windfall from the gov't safety net.<br /><br />Love your blog and look forward to the promised post on your withdrawal from the pain meds.Flaneurnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-15022007833237359862009-10-29T09:04:43.267+11:002009-10-29T09:04:43.267+11:00This is extremely good work on your part.
We ac...This is extremely good work on your part. <br /><br />We accumulated various series of Fannie and Freddie preferreds amounting to about $20,000,000 in liquidation preference earlier this year. We still hold the position and are prepared to accumulate more if the KBW silly season continues. <br /><br />What struck us, as another poster pointed out, was the remarkable lack of liquidity in these preferreds in light of the huge number of shares outstanding in the larger series (for example FNM/PS - 280 million shares; FRE/PZ - 240 million shares). <br /><br />These series were impossible to buy in any size except on Mondays or Tuesdays when the FDIC was dumping failed bank inventory. <br /><br />This causes me to believe that most of the Fannie and Freddie preferred shares remain in the hands of the smaller banks that bought them before the Paulson rape.<br /><br />I am led to two conclusions from the above: 1) Since small bankers are a canny lot, they do not continue to hold securities they have written down unless they have some reason to believe they will have value again within a reasonable period; and 2) the Obama administration, also a canny lot, must realize that merely a partial resumption of preferred dividends by the GSEs would pump more capital into the smaller bank balance sheets than the TARP funds recently allocated for that purpose.<br /><br />Ah such endless possibilities.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13548322759743867272009-10-29T09:02:12.664+11:002009-10-29T09:02:12.664+11:00the outcome may or may not be favorable but the pr...the outcome may or may not be favorable but the process is wrong :). i'll let you know why next week when i arrive in town if you tell me if st. vincent is the best hosp in town? need a cardio checkup pronto.<br />andyAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-86775218407757294932009-10-29T06:06:40.904+11:002009-10-29T06:06:40.904+11:00Alessandro: it's cents on the dollar, not just...Alessandro: it's cents on the dollar, not just cents. For example, the FRE.pr.z preferred is at about $1.05 today, but has a face value of $25, so it's trading for about 4 cents on the dollar.<br /><br />JH: Sorry I don't comment more, but I am out here reading along! As long as Alessandro is mentioning BTA, it makes me real sorry I didn't spend more time trying to figure out how to buy an Australian security from here in Canada!Potatohttps://www.blogger.com/profile/18157102363273750204noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-65387107639137697442009-10-29T05:59:18.231+11:002009-10-29T05:59:18.231+11:00Hey Alex, try:
for fnm-pfds
http://www.quantumon...Hey Alex, try:<br /> for fnm-pfds<br />http://www.quantumonline.com/ParentCoSearch.cfm?tickersymbol=FNM<br /><br />and for fre-pfds<br />http://www.quantumonline.com/ParentCoSearch.cfm?tickersymbol=FRE<br /><br />the actual ticker varies by retail websites sometimes fre-p, sometimes fre.ppMichaelnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-26035748069241416422009-10-29T05:55:05.392+11:002009-10-29T05:55:05.392+11:00Well Put Maria. With regard to your last question...Well Put Maria. With regard to your last question, re: BK court, there was a Wash-Post article on some Dem legislation:<br />http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102603260.html<br /><br />What upsets me is this line "The intent of the new authority would be to give a government agency the power to take over a failing firm and dissolve it outside of the bankruptcy process"<br /><br />If passed, it seems the us-gov would have no threat from a BK judge if they were to shut the gse's down. I don't like the sound of it.Michaelnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69907200338650739072009-10-29T02:54:55.476+11:002009-10-29T02:54:55.476+11:00John,
Thank you as always, for a wonderful and´,...John, <br /><br />Thank you as always, for a wonderful and´, in my view, correct analysis.<br /><br />I would like you to explain to me the difference between the hedged NIM, and the short term NIM.<br /><br />I thoght FnF had only 1 months duration gap, and that the swaps made them totally interest rate insencitive, but only affected different lines in the p&l at differetn times.<br /><br />Thank you in advance<br /><br />ErgienAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-85106648566056701612009-10-29T02:28:51.891+11:002009-10-29T02:28:51.891+11:00dear John,
i've been reading you regularly in...dear John,<br /><br />i've been reading you regularly in the last few months. I've also made some money going long on BTA and short on SWHC and i'm greatfull for this. I hope i can contribute with some contrarian ideas in the near future... i'm trying to work in that.<br /><br />I've been trying to identify what are the GSE preferred shares you're talking about, but so far with no success. All the preferred stocks of Freddie Mac i've been analyzing are over 1.4 usd, not anywhere near the 2 to 4 cents you were talking about. <br /><br />Can you give us the symbol? If you prefer not to do it, no problem, i'll keep reading your blog anyway :)<br /><br />ad maiora<br /><br />AlessandroAlexhttps://www.blogger.com/profile/03104364462171590706noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-37336748558332917142009-10-29T00:52:10.926+11:002009-10-29T00:52:10.926+11:00Great job on this analysis. I wrote my own rebutt...Great job on this analysis. I wrote my own rebuttal to the KBW piece. It is here:<br /><br />http://blog.gatorcapital.com/126/rebuttal-to-gse-worthless-analysis/<br /><br />It will be interesting to see Freddie's earnings report. I agree the write-up of the non-agency positions will be a nice positive. The headwinds will be lower interest rates during the quarter and the pressure on the loan loss provision from continued rise in past due loans.Derek Pileckihttp://blog.gatorcapital.com/72/fannie-mae-shareholders-to-preserve-value/noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13006674241683318102009-10-28T22:56:19.846+11:002009-10-28T22:56:19.846+11:00Bronte Capital should be a consultant for the US g...Bronte Capital should be a consultant for the US gov on these two companies. It seem this firm sees clearly the value of these two firms and shows the international markets do as well. <br /><br />I note owning both Freddie and Fannie stock I am very excited about the numbers this REAL investment firm is posting and should be noted by all as more valid that KBW.<br /><br />John, many many investors have read your study and most likely are holding due to it. i for one are in a holding pattern collected 10"s or thousands of shares with the view that nothing is going to change now and that an exit plan must be easier to leave the giants alone-let them heal and payback the tax payor.<br /><br />Only wallstreet wants to dismantel FRE/FNM. <br /><br />I hope this quarters numbrs are good for both and we see a change in view as well the GOV just to say we stand by the conservitorship.<br /><br />Good luck on your investment!<br /><br />A proud American not proud of bullcrap American investment houses fake and fraudulant numbers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78079752073397484442009-10-28T17:02:47.632+11:002009-10-28T17:02:47.632+11:00I think this KBW note was a hatchet job. Moreover,...I think this KBW note was a hatchet job. Moreover, the sell off was not selling done by people following the analyst, but rather the note was the explanation for selling. <br /><br /> It took me untold amount of time to bid for those securities. I'm still up ~3X at these levels (for how long?). The liquidity was atrocious, and the only way to pick up any shares was to sit on bids to see someone trading around you. I think I did a good job, and they were out of favor at the time I was buying. I bought in 2 volleys. One in December 08 and one in March 09. I got enough for me, but for a hedge fund, I can see a serious limitation on liquidity.<br /><br /> If I wanted to get them in massive quantity, I would try to tag the arbs with the common to force losses and liquidations on divergence, followed by an all out attack. However, the volume sold is still tiny. What was accomplished, though -- fear was put in owning the securities. 10K market order can move almost any series a $1 either way.<br /><br /> I appreciate your posts regarding GSE pfds. I also think you almost should not be an American to see the trade.<br /><br /> I also doubt on the final result being $0 comp on pfds, because FRE subs were redeemed @~110. That's interesting given the current state of FRE. It may have been a screw up on the part of FHFA to allow FRE to redeem subs, and I suspect it was a nod to the treasury 10% pfds divvy. However, that redemption puts the conservator of an entity in an interesting position had FHFA chose to wipe out FRE pfds. An asset one tier above was redeemed @~110, yet pfds are @ $0 without BK court approval? Isn't BK court designed for exactly those situations?Marianoreply@blogger.com