You still haven't told me whether you just want us to all make you feel good about your bet or not. I'm assuming that you want criticism. If I am wrong, just delete the rest and "it is a ten bagger for sure" is fine with me. It isn't like it is a thinly traded stock, so I can't imagine that you want to try to pump it.
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Originally Posted by northeastbeast
Positive Factors:
1. Just settled with Bank of America in January for 10 billion. Lawsuits pending against 12 other large banks. Likely outcome are settlements of at least 30 billion.
2. Pending LIBOR related lawsuits. Likely settlements in the 2-10 billion dollar range.[/quote]
Both positive. Reduces their debt from approximately 3.1 trillion to approximately 3.1 trillion.
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3. Readjustment of the preferred share dividend from 10 percent to a situation where they have to give all of their profits over to the Treasury.
Absolutely agree. That is already priced in. I am sure you saw the jump in share price.
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4. As of last quarter they now have a positive book value and achieved record earnings last quarter.
They still have a negative book value and it isn't even close. It was not a records earning season for them. Look back more than 3 years.
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5. Appreciation of REO property and far easier disposition of that property with an estimated current market value of 10-15 billion.
3.1 trillion in debt will get reduced (if they sell all of them at book value) to approximately 3.1 trillion dollars. Getting better though.
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6. Increase in home values in most major cities of about 6 percent on an annual basis means less homeowners underwater.
Huge. Increases like that will eventually (10 plus years from now) get them to positive book value if they are consistent.
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7. An increase in guareetee fee percentages allowing for a less risky portfolio long term.
They have to sell most of their portfolio.
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8. Extremely stringent underwriting in loans it has retained since 2009 with a net failure rate of under 1 percent.
Untrue.
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9. Borrowing costs at 10 basis points above the 5 year Treasury rate. Making their net interest margin very favorable. I estimate their net interest margin is somewhere around 2 percent on their current 3 trillion plus portfolio giving them potential net cash flow of 60 billion dollars per year.
They are writing 15 and 30 year fixed loans on 5 year borrowings. As long as there is no interest hikes this is fine. With the leverage they have though, any retracement will crush them.
10. Much lower cost basis than Bank of America with almost twice the number of assets. Bank of America trades at 34 times earnings and even with their massive litigation costs they earned over 2 billion dollars last quarter(they just reported earnings).[/quote]
Earnings after paying the government will be zero for the foreseeable future. Their only way out of being under the thumb of the treasury is by paying back principle.
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11. Fannie Mae says that it is likely that they will declare an approximately 62 billion dollar 'tax deferred asset' and will release that money as a dividend to the Treasury.
That already happened (they didn't do so). Dividends do not get them out from under the thumb.
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12. Politically there will be pressure on the congress and the Treasury to modify the terms of the agreement as the obvious profitability and payments to the Treasury make it unfair to continue the conservatorship based on the regulations and spirit of it. The conservatorship has been highly effective in getting the desired result. Fannie Mae easily has the borrowing capacity right now to entirely pay back the government by issuing bonds in the debt market. Housing finance reform does not require for the GSE's to be broken up for reform to happen.
Such political pressure will never happen.
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13. Possible lawsuits by shareholders if the amount paid to the government is excessive and undermines the intention of the conservatorship. I expect that within 3 quarters that stockholders and employees will become much more vocal in their opposition to the structure of the conservatorship. The company and employees deserve a payoff for all their hard work. Half the people that work at the company currently are an entirely different group of people than when the conservatorship started.
Won't happen. Ever. Not in a meaningful way at least (just in case you were going to launch a failed shareholder attack).
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14. I argue it is impossible,impractical,irresponsible, and unnecessary to reduce the size of Fannie Mae to the point that it has only 250 billion dollars in assets by 2017. The assets they are buying are fully available to other banks in the market. They are going to be absolutely vital as a one way trading partner with the Federal Reserve and the rest of the market for mortgage bonds that the banks and the Fed need to sell. Without the GSEs access to favorable borrowing costs by their affiliation with the government and their willingness and ability to carry loans on their books in a non mark to market pressure situation, paper losses to banks and the FED when interest rates are increased could be substantial.
It is still going to happen. They will most likely be wound down (Freddie and fannie) and the normal markets will take over. To do otherwise would require an act of congress. Congress doesn't seem to be able to agree on minutia.
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On the other hand, I could be wrong. I'm not on the current details. It is possible that my view of the future is a bit off. Haven't been in the future yet.