Goldman, Buffett Deal with Fannie Mae Inked a Month Ago

If you were curious about the recent news regarding Goldman Sachs' (GS) and Warren Buffett’s (BRK.A) interest in acquiring the tax losses of Fannie Mae (FNM), the details are in Fannie's 10-Q.

This deal was agreed to and inked a month ago. It is still pending approval. So the information that was first reported by Bloomberg was a deliberate plant. A possible objective would have been to get a decision on the transaction before yesterday's release. Note that the Q provides an update of the deal’s status as of November 5. Someone was waiting to edit this section right up to the last minute. A tad unusual.

From the Fannie Mae 10-Q , November 2009:

Prior to September 30, 2009, we entered into a nonbinding letter of intent to transfer equity interests in our LIHTC investments. Under the terms of the transaction as currently contemplated, we would transfer to unrelated third-party investors approximately one-half of our LIHTC investments for a price that exceeds their current carrying value. Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time. At a specified future date, the percentage of tax benefits the investors would receive would automatically be reduced and the percentage of tax benefits we would receive would be increased by the same amount. In addition, we could have the obligation to reacquire all or a portion of the transferred interests.

We have requested the approval of FHFA, as our conservator, to complete this transaction. FHFA has advised us that it has no objection to this transaction as it is consistent with the conservation of the assets of the corporation and that FHFA has requested Treasury’s approval under the senior preferred stock purchase agreement. As of November 5, 2009, FHFA has not yet received this approval. If in the future we determine we no longer have the intent and ability to sell or otherwise transfer our LIHTC investments for value, we would record additional other-than-temporary impairment to reduce the carrying value of our LIHTC investments to zero. As of September 30, 2009, the carrying value of our LIHTC investments was $5.2 billion.

So the number that Fannie puts on the value of these tax credits is $5.2 bil. It will be interesting to see what Goldie and Warren were willing to pay for them. The real question is, what are they worth?

Comments

[Augustus:]

Note that the real kicker on the deal is that FNMA is still on the hook for the properties as they have agreed to buy them back. A good question would be whether they would be able to repurchase the properties in the future. having that Put does solve valuation problems for Goldman and Berkshire.

Nov 06 06:06 AM

[John McLeod:]

I blogged on this overnight, but this additional information sure adds to the picture. Thanks!

Nov 06 06:17 AM

[lo574:]

Would be nice if the originating lender would approved the POS loan have to buy back the mortgages - not FNM

Nov 06 08:26 AM

[lo574:]

A friend of mine was all over this when the news was released. Why shouldn't the American taxpayer be allowed to purchase? They're the ones that bailed out every lender to begin with. Why not open it up and give them the tax savings? Additionally I don't care for the idea of GS owning a piece of the gov't. but why will it happen? Oh yeah, that's why. Government Sachs controls the gov't.

Nov 06 08:29 AM

[Warm_Paw:]

What can the taxpayer do about it.
A movement should be started confining the president to one term if he blatantly stands by while Goldman and Buffet profit from the tax payer subsidizing losses to the banks.
This can't be legal?!?!?!
Aren't their people handling tax dollars who are accountable to the public?
What prevents anyone from lining his pockets through this kind of action?

Nov 06 10:06 AM

[venturen:]

Goldman is cruisin for a bruisin!

Nov 06 10:39 AM

[Destin:]

On Nov 06 06:06 AM Augustus wrote:
> having that Put does solve valuation problems
> for Goldman and Berkshire.

At this point I think it's a foregone conclusion that ANYTHING involving GS and any Federal agency will be, suffice it to say, "Good for Goldman".

Nov 06 11:01 AM

[fwi:]

Apparently the taxpayer not only is asked to bail out Goldman when asked, look the other way when enormous bonuses are paid for trading profits instead of loan revenue, and now we need to help them with their "tax problem". How is any part of this defensible?

Let the FNM tax credits die worthless and unused. Make Goldman fully pay the taxes it owes. This pseudo financial engineering is not "brilliant", it is not"innovative", and it certainly does NOT help the taxpayer.

This is Washington in a pathetically amateurish way trying to play "Wall Street". Tim and Ben will NEVER be able to keep up with the big boys. THey are only along to be used. THey act like the kid brother who gets to play with the big boys as long as he agrees to take the fall when they all get in trouble.

Nov 06 12:02 PM

[biomedlives:]

I hope the Treasury tells Goldman and Buffett to go pound salt on this one!

Nov 06 04:49 PM

[jasonw719:]

I try to stay away from conspiracy theories and the like but the further this debacle plays out, the more I wonder. The Country is getting FLEECED by the likes of major institutional investors. First they profited from the DotCom bubble; then the oil bubble, then the housing bubble. Their new source of capital is the taxpayer - so who is going to bail us out when that bubble collapses?

Nov 06 06:20 PM