FNM/ FRE preferred
Has anybody looked at FNM/FRE preferred stock? They trade far below par (10-20%), but of course pay no evident right now. The investment thesis rests in lawsuits and the fact that the company get a "Mulligan" since they are now profitable. Lot's of legal "experts" chiming in on seekingalpha and CoFB that think it is a crystal clear case of unlawful expropriation.
I am not so sure. Remembering Sept 2008, when the treasury stepped in and pseudo nationalized them (by means of getting 80% senior preferred to avoid putting them onto the Feds balance sheet) and then the later net worth sweep, that clears out the earnings after all the Feds aide and interest has been paid off are strange maneuvers.
I don't understand the law well, but from my point of view, the fact that they later became profitable enough to lay back everything is irrelevant. If you are insolvent, you can get taken out by regulators, which is what happened in this case. I also think that the Feds really had no choice, because if the market had lost their faith in FNM and FRE and they had become truly insolvent, the financial markets would have become a black hole, since both entities were guaranteeing trillions of US$ in mortgage debt, which were held by every bank in the US (as well as foreign banks). I think it would have been equivalent of the US government defaulting.
Anyways, I have never seen a case , where a regulating body was successfully sued for taking out an insolvent financial institution. If anybody heard of such a case, I would like to look at it. So for me, regardless of how the Feds constructed it, these institutions are nationalized. The owners of common and preferred will get nothing.
I could be wrong, but I'd like to hear from board members how they think about this case. If I go to SA and CoFB, I get a lot of comments that I don't know what I am taking about (probably true in the legal sense), but I sense tha those that think that this is a clear case are very delusional.
SA has Glenn Bradford ( check out his profile and it's clear that he is an idiot) posting an article every couple of days, who has put all his net worth (and then some) into preferred stock and borrowed enough that he may default on his loans and the end of this month (according to his own posting). This Glenn Bradford went broke on Chinese reverse mergers a couple of years ago. His articles are biased, but they do contain interesting minutia regarding the lawsuits.
seekingalpha.com
Comments welcome, as I am curious and would be interested in differing opinions. |
