First, those of you who did not look at the slides of his presentation, I highly recommend doing so, because except the government, Ackman, I believe, is the largest shareholder of the common stock in the GSEs
I would like to point out slide number 104. The table in the slide suggests a few things:
1. A $23 stock value in 7-10 years at current G-fee and ZERO dividend to common shareholders.
2. A $35 stock value in 7-10 years at G-fee increase of 33.33% and ZERO dividend to common shareholders.
3. A $47 stock value in 7-10 years at G-fee increase 66.67% % and ZERO dividend to common shareholders.
The presentation is very interesting, but I am sure many on the board, including myself, are disappointed with the no dividend for 10 years scenario presented by Ackman.
In short, his scenario for common stock holders at current G-fee levels is stock price appreciation to 23.00 without any dividend, which is equal to 19% annualized compounded return.
For those of you who wonder why the stock is stuck at this price level, this is exactly why. When the largest shareholder is trying to lure the government into a deal which [if he is successful in striking it] will yield only 19% return on investment per year for common shareholders, without any dividends, it isn't very encouraging to take the risk for such "low" returns.
In fact, this presentation is making the preferred shares so much more attractive. The $25 par value FNMAS trading at 10.35 will pay a $2.00 dividend which is 19% return on investment at current prices. Plus the optional redemption for the stock is set at $25.00 plus accrued dividends from the most recent payment date whether they were declared or not. So FNMAS is worth $25 + $12 in unpaid dividends = $37.
I invite all intelligent comments regarding this analysis that are directly related to the valuation featured on slide 104 of the presentation by the largest GSE shareholder. Please keep this thread clean of complaints about Crapo and Govt.
Perhaps somebody can help me understand what I'm missing here. I believe Ackman's case was primarily seeking justice on two fronts, reversal of profit sweep and release from conservatorship. Because such action would bring relief from governmental control of FnF, thereby releasing the intrinsic value of their common holding per market forces. The interpretation here however ( I have not viewed the slides yet) suggests deal making between Ackman and the government. The question in my mind is that if I were the government, whether legally or illegally holding 80% of warrants! I would imagine my best returns on exercise of those warrants at the highest price, making this "deal" pretty darn lucrative. Further if Ackman is entitled to make such deals with the government, then how was the government wrong in dealing with the conservator ? Second, it has also been my understanding that illegality and overreach was the primordial force behind Ackmans suit against the government. Unless that thrust still remains in some other slide not highlighted in this discussion, has Ackman's objectives changed since his filing ? Finally, if deal making and price setting is the new mantra, what justification remains for discovery ? Was all the cases, the discovery, justice Sweeney's overruling of government objections etc. an exercise in futility to further complicate a mountain behind a molehill ? Would appreciate a perspective to unclutter.
bullchase says -- The question in my mind is that if I were the government, whether legally or illegally holding 80% of warrants! I would imagine my best returns on exercise of those warrants at the highest price, making this "deal" pretty darn lucrative.
Anthony says -- The highest rewards might come from dividends if the stock is not sold. The warrants entitle them to buy 4,603,514,651 common shares for $46,035 . What would the stock be worth in 20 years??? How much in 100 years??? 500 years??? 1000 years??? How many times would the stock have split increasing the number shares owned???? How much in dividends would accrue to the American taxpayer??? How much tax relief might future taxpayers experience if our present politicians and others were capable of thinking in such a way that we truly try to resolve the economic problems we experience today. We the people might have an exceptional opportunity here if we revitalize Fannie and Freddie. I also suggest cancelling the Senior Preferred stock account so that Fannie can immediately start retaining an additional $11.7 B per year on top of their current earnings. There are some solutions where everybody wins..
Correct me if I'm wrong but the calculations in the presentation are based on the government owning 80% through the warrants. It's likely that the courts will invalidate the warrants since the "loans" have been fully paid back through the net worth sweep. That makes the stock value 5 times his estimates.
Yes you are correct. I too do not believe in offering the government the warrants as a reward incentive while they continue strangle the market capitalization and recapitalization by sweeping all profits of the privately held companies. Taxpayer do not own this, the debt has been more than repaid. Period, end of story.
Yes the calculations are based on the government exercising the warrants thus diluting us 5 times. That is how Ackman plans to strike a deal with the government and that is going to be the compromise he offers them. So question becomes does anyone think $23 after 10 years is a bad deal ? I think this deal is fine. It's not really a 19% compound return since most of us bought FnF well below $4. The return is probably closer to 40%. And who knows maybe the price will be more than $23 in 7 years so again it's more than 40% now. Let's take the deal and not open another suitcase. Thoughts ?
Sentiment: Strong Buy
I skimmed through the slides and did not find any that specifically dealt with the warrants.
If Ack has talked or presented this anywhere please link. I say this is ominous. Projecting a
pps without talking about the warrants......
I didn't see the slides, but I think your missing the rate effect on the equity. So the equity has to fall for the rise in rate because the equity is overvalued with rates at normal. The yield and bond can't rise together. The common not to carry a book, I don't know the variables ripple so far on. I think earnings should go to the div for service. Even if fnm is released whole end of summer maybe close to 7%rate makes equity comeback down.
I agree with the underlying premise of the theory you have presented. I have always wondered why the senators are monkeying about with this bill and making unreasonable and nonsensical statements.
THEY WANT TO BLACKMAIL US RETAIL SHAREHOLDERS INTO A DEAL AND THEY ALREADY
HAVE THE HEDGE FUNDS ON THEIR SIDE.
They feel they deserve the lions share of Fannies worth right now and we the retail shareholders can live with the rest i.e $23 in 7 years. This is horse manure and daylight robbery . It needs to be $60 now and
north of $150 at fair value.
So far this strategy has been counter productive. Another way would be to have the hedge funds own north of 50% of the float which they have been trying to do unsuccessfully.
Us retails are not selling their shares :)) ( Hooray to us )
The hedgies will happily negotiate for 19% per year but us retails are uncompromising and idealistic. ( Eg Frank Fosco .. I rest my case :))
The Hedgies cannot seem to go beyond 25% ownership and us retails are in no mood to negotiate. Court case is chugging at a decent pace.
The next couple of months will be interesting.
F&F should not pay dividend (including sweep) until they build their capital to the regulatory minimum level, say 8%. They will then be stable to shield taxpayers against losses.