Heavy criticism for GSE recap proposal

"In the long history of bailout deals, no heist of the U.S. taxpayer would approach this one in cynicism and chutzpah," writes Jonathan Laing of Bruce Berkowitz's buyout plan for Fannie (FNMA +5.7%) and Freddie (FMCC +5%). One analyst calls it a "three-card monte" scheme in which the preferred holders want taxpayers to pay them off at par, or turn over the keys to the companies wildly valuable operations for little more than a $17B rights offering.

Yes, Treasury will have realized $187B in dividends from the GSEs by year end - equal to the amount of the bailout - but that's "merely fair recompense for the enormous risks taxpayers took." Also, more than $80B of the $187B is the write-up of deferred tax assets - it will only be realized if the companies operate profitably for many years, says Laing.

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Comments (7)
  • Palenque
    , contributor
    Comments (395) | Send Message
    US treasury made the "Killing of the Century". They only invested 137 Billions not 187 Billions like everybody is repeating. The other 50 Billions are non cash loans for payment of the annual 10% dividend.
    It means the money never was received by the GSEs because it automatically was paid back to Treasury as dividend!
    Furthermore the 137Billions were not needed by the GSEs. It was forced into them in order to be used to buy toxic assets from big banks.
    So Treasury already made and cashed 50Billons, used the GSEs as a "bad bank" (a trash bin for toxic assets), used the GSEs to propel the housing market because the big banks flew away from risk.
    US treasury will keep making tons of money with the GSEs because it owns 79.9%. Will continue helping housing prices and
    affordability for people. Everything is Ok.
    Why Treasury doesnt share the profits with its partners? (shareholders own 20.1%) Why Treasury doesnt pay dividend to the juniors preferred?or why they dont use the profits to capitalize the companies? Why want Tresaury (and Congress) go against the law?
    Is there a little bit of common sense left in Washington yet? Please show us where is it
    2 Dec 2013, 12:54 PM Reply Like
  • 1980XLS
    , contributor
    Comments (3360) | Send Message
    Wealth re-distribution in play.
    2 Dec 2013, 01:12 PM Reply Like
  • Retail Investor
    , contributor
    Comments (892) | Send Message
    Caludio, what do you think of my comment to another post. Would love to hear your thoughts:


    GSE's can generate $90b/year in EBITDA. At 10 times EBITDA, the GSE EV will be $900b


    GSE's have preferred of $200b. This will leave $700b in EV for common equity. If govt's 80% ownership is deemed legal (i think this was 2nd agreement) then 20% ownership for existing common equity holders equates to $140b or approx 5 times the current market cap.


    W.r.t capital ratio, there are various ways to address it from a position of strength once EV of GSE is determined. Keep in mind right now and at least for the next 2 years GSE will likely earn EBITDA of $80-90b/year...so within 2 years they would become adequately capitalized.


    Also, the preferred's can easily be exchanged for new preferred's (once the EV is made public after all the confusion of Aug 2012 agreement is decided in courts). There is NO need to drain capital to pay of preferred. Also, remember company that can earn $80-90b in EBITDA, preferred of $200b is NOTHING.
    2 Dec 2013, 08:48 PM Reply Like
  • Palenque
    , contributor
    Comments (395) | Send Message
    Yes I think that is not crazy to expect 5 times the current market cap.
    Dick Bove , the most respected banking analyst in USA, said a couple of days ago that 500% appreciation is his target
    2 Dec 2013, 10:25 PM Reply Like
  • 1980XLS
    , contributor
    Comments (3360) | Send Message
    I expect Obama to take his "Fair Share" of the shareholder's wealth.
    3 Dec 2013, 07:55 AM Reply Like
  • philipmax
    , contributor
    Comments (429) | Send Message
    Caludio, Well said. I'm afraid no one in Washington is listening because we have a Marxist bent in charge. Confiscation is not an anathema to these gangsters. Expect the worst.
    9 Dec 2013, 11:35 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11349) | Send Message
    Well, now Laing knows how shareholders feel about congress...
    2 Dec 2013, 03:53 PM Reply Like
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