Sunday, September 7, 2008

Sunday Afternoon with Fannie Mae and Freddie Mac (FNM; FRE)

Two quick links. From Naked Capitalism:

Freddie, Fannie and (Sort of) Federal Home Loan Bank Bailout
The deed is done. Freddie and Fannie are now officially in conservatorship.

Uncharacteristically, I listened to the presentation by Paulson and Jim Lockhart, which was thin on details (particularly size of new facilities and investments). The bombshell was the aside that not only is there to be a new secured lending facility for the GSE as part of the rescue, but also for the Federal Home Loan Banks, which collectively had as of year end 2006, roughly $1 trillion of assets, In interest of getting this post out, I have not yet located the 2007 level, but trust me, since there was a backdoor bailout of Countrywide via the FHLB system (my recollection is roughly $50 billion of assets were offloaded), the total is no doubt bigger now. This was a mere aside, BTW, and I have not seen this detail picked up anywhere in the initial press reports, but is clearly contained in Paulson's speech.

A second noteworthy feature was that Paulson took care to steer clear of saying the US was assuming responsible for GSE debt....
...As expected,. all common and preferred dividends have been eliminated (note the word was "eliminated" not the more user-friendly "suspended of earlier reports). The government will invest via up to $100 billion of new senior preferred (the figure was not included in the presentations).

All lobbying has been eliminated....MORE
And from The Big Picture:

Treasury Takeover of GSEs: 10 Key Points
I am still working my way through the details of the GSE takeover by Treasury, but here is my initial read of the details:...
...• Senior preferred stock purchase agreement includes an upfront $2 billion issuance of senior preferred stock with a 10% coupon ($1B per GSE); Dividends are quarterly starting in 2010, and warrants represent an ownership stake of 79.9% in each firm.
...This looks like a 80% haircut for the common holders, I am trying to figure out if this is a haircut for the preferred holders . . .

Regarding common and preferred losses: "With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares . . . conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses."...MORE
That concludes our Sunday coverage of Fannie and Freddie, we'll have more tomorrow but for now, back to our regularly scheduled programming: