An Update on Fannie and Freddie: The Road to Recapitalization

Published on
November 21st, 2019
Duration
18 minutes

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An Update on Fannie and Freddie: The Road to Recapitalization

Trade Ideas ·
Featuring Gabriella Heffesse

Published on: November 21st, 2019 • Duration: 18 minutes

Fannie Mae’s stock was up almost 300% in 2019, however shares have recently fallen sharply over 40% in the past few months. Gabriella Heffesse, CFA, of ACG Analytics, returns to Real Vision to argue why prices are deviating from fundamentals, and to discuss the current opportunity in the junior preferred stock. In this interview with Justine Underhill, Heffesse reviews the timeline for the road to recapitalization, analyzes the upcoming legal and regulatory hurdles, and highlights how traders should position over the coming months. Filmed on November 19, 2019.

Comments

Transcript

  • YB
    Yuriy B.
    10 December 2019 @ 17:11
    Gabriella strikes again. FNMAS up 10-15% since this interview. Consistently one of the top 5 RV guests!
  • PP
    Peter P.
    25 November 2019 @ 23:55
    Highly speculative. No thanks
  • YB
    Yuriy B.
    24 November 2019 @ 23:11
    Gabriella: brilliant, as always. If you are reading this, a question for you: what do you think of today's (11/24/19) WSJ piece on the situation? The Journal points out that that congressional legislation will likely be required to allow privatization of FNMA to proceed. What congressperson wants to sponsor a bill to take these institutions private in today's populist political climate? https://www.wsj.com/articles/firms-warn-of-risks-in-plan-to-take-fannie-mae-freddie-mac-private-11574591423
  • XF
    Xavier F.
    24 November 2019 @ 17:51
    confusing... needs to be simplified a bit more
  • JJ
    Jesse J.
    22 November 2019 @ 02:20
    Alright I'm going to try to summarize as best I can what the conversation was mostly to help my understanding. Freddie and Fannie didn't know how to loan money and so the Treasury took them over, installed a director and then took all their profits. Something legal happened in the 5th circuit and a "Letter Agreement" between FHFA (Federal Housing Finance Agency) and Treasury came about that let's Freddie and Fannie (F&F) retain earnings (Keep some pesos!!!) Since they can now retain earnings their leverage is decreasing making it less unstable (still horrible though :) This is all still early stages it seems and to get pulled off so that everyone makes money it has to be done quickly and correctly (Good luck my good government person.) Side Note: Gabriella points out the drop in price is probably due to liquidity concerns (i.e. the hedge funds need some cash and they got some of it from low volume F&F, PCG, and Intelsat) More Side note: Intelsat just got REKT due to some 5G change ups and their satellite systems are pretty much going to be space weight. Summing up as best I can understand: Essentially 3 things have to happen about the same time and near independently of each other. 1) They have to have enough actual money in their account to get over a 250 credit rating (you get 200 if you can spell your name right). 2) This part I'm confused on. An amendment of the PSPA. It sounds like they are going to "Re-value" the shares? Maybe buying them out or just saying "well this is worth x-1". Not sure on this point. 3) Legaleaz wize they have to make it so that the government can't come back later on and take all the money they have been saving to again become their own business. If they can't, then the next Washington Administration that hates them can come along and again take their lunch money. In short this was confusing to me but also very helpful in learning. It's so strange to me that F&F can loan money out, get paid back, but the treasury takes it and the stockholder investors fund it. All the while the goal seems to be, don't be the last guy/gal with the hot potato.
  • JP
    John P.
    21 November 2019 @ 16:58
    This is great. These are the types of interviews that are really valuable. We need to hear more ideas from her and others like her!
  • OC
    Otto C.
    21 November 2019 @ 16:57
    Why would anyone put money on this junk?
  • DB
    David B.
    21 November 2019 @ 16:22
    Gabby, Since your interview, we obviously got the announcement from FHFA that they are going to re-propose a capital rule. Jr. Pfds reacted negatively. I would assume that you don't think this announcement has much impact on the outcome and that the FHFA is still really targeting Q3/Q4 2020 to set the GSEs on a permanent path toward recap & release. Does that sound about right? Thanks so much for your analysis!
  • JG
    John G.
    21 November 2019 @ 14:43
    Gabby, I really appreciate your ability to take a fairly complex situation and simplify it to where the important legal and regulatory issues that will drive the recap and release process are explained and categorized along with a rational timeline that has a high probability for the exit from conservatorship. It provides us a clear road map to follow to see if your investment thesis is still on track. Thanks.
  • DI
    Dabangg I.
    21 November 2019 @ 09:24
    Stop limit?
    • tr
      tom r.
      22 November 2019 @ 00:37
      I'm surprised she didn't just have dart board. Confusing to say the least.
    • JJ
      Jesse J.
      22 November 2019 @ 01:27
      I think this was in reference to her previous interview concerning the question of a stop loss to which she responded it could go up 100% or you could loose 100% [overnight].