BlackPacific Capital LLC

Founder and Portfolio Manager of BlackPacific Capital LLC 💎🙌 #BITCOIN

[Geoff Crouch @gcmarbella]

BIG BEAUTIFUL IPO $FNMA $FMCC

[Bill Ackman @BillAckman]

Some have raised questions about whether the government can deem the @FannieMae @FreddieMac (together: 'F2') Senior Preferred Stock ('SPS') repaid in full in connection with the release from conservatorship and re-IPO of the two companies.

As we have previously explained, the government and taxpayers have received substantially more than the contractually required dividends and principal on the SPS under their original terms, but as an accounting matter, these payments were not credited toward the SPS in light of the net worth sweep, and subsequent adjustments made to the SPS terms by @stevenmnuchin1 when the net worth sweep was cancelled, and F2 were allowed to rebuild capital.

We asked our outside counsel who have closely followed F2 whether there is any legal authority that would prevent the deemed repayment of the SPS. After a detailed review of the relevant statutes and the law, our counsel does not believe there is any legal authority that would prevent such a modification of the terms of the SPS so that they could be deemed repaid in full.

In summary, the principal governing law that applies here, the Housing and Economic Recovery Act or HERA, gives the @USTreasury and @FHFA extremely broad authority to determine the current and future terms of the SPS, including a modification of their terms that would deem them repaid in full.

For reasons that we have previously explained, we believe it is in best interests of Treasury, FHFA, our government, and taxpayers for the original terms of the SPS to be honored, and thereby for the SPS to be deemed repaid.

We believe that doing so will insure the highest trading value for F2 post conservatorship, maximizing the value of the government's investment in the two companies while also preserving important precedent for future conservatorships of other financial institutions.

We are of course willing to share our legal analysis with the @USTreasury and @FHFA at any time.

[Pulte @pulte]

We are thinking of holding a press conference tomorrow or Thursday. I will let you know.

[Pulte @pulte]

Interesting. I will look into these Obama items, if available, as it relates to our Agency and the GSEs.

[Alec Mazo @Alec_Mazo]

Must read by @rule_of_law_guy…
Senior Preferred shares owned by the Gov’t are equity, not debt, and the Gov’t can write them off if Trump sees Obama’s net worth sweep, structured by Jim Parrott and friends, as a socialist nationalization instituted in 2013. @pulte

[Mario Nawfal @MarioNawfal]

🚨🇺🇸 AUSTIN: TESLA ROBOTAXIS NOW LIVE WITH $4.20 RIDES

Tesla just flipped the switch on robotaxi rides in Austin, starting in a small zone around South Congress, Rainey, Zilker, and East Riverside.

The flat fee? $4.20. No surge, no per-mile math, just pure Elon-brand chaos economics.

Rides are limited to a tight geo-fenced area (for now), but wait times are already down to 4 minutes.

Only 10 vehicles are active at launch, so it’s more beta than breakthrough, but the future’s pulling up to the curb.

If you’re in the zone, it’s officially cheaper to let a robot drive you to tacos than pay for parking.

Sources: @elonmusk, @Tesla_AI, @SawyerMerritt

[Punchbowl News @PunchbowlNews]

From THE VAULT: The Senate GOP faces the ultimate reconciliation test, Senate Democrats mount their reconciliation blitz, U.S. crypto policy has a decisive week and more.

@LauraEWeiss16, @BrendanPedersen & @AndrewDesiderio in the Lookahead:
https://t.co/9P90LHHmUj

[The_Real_Fly @The_Real_Fly]

Iranian official: Fuel ships will not pass to Europe through the Strait of Hormuz.

[The Kobeissi Letter @KobeissiLetter]

BREAKING: President Trump says the US has completed three attacks on nuclear sites in Iran.

The US is officially striking Iran.

[zerohedge @zerohedge]

*FED LEAVES RATES UNCHANGED

*FOMC MEDIAN FORECAST STILL SHOWS 50 BPS OF RATE CUTS IN 2025

*FED HOLDS BENCHMARK RATE IN 4.25%-4.5% TARGET RANGE

[The Kobeissi Letter @KobeissiLetter]

BREAKING: Israel declares a state of emergency after striking Iran’s capital.

[Bill Ackman @BillAckman]

Recently, there have been a number of media stories suggesting that Fannie Mae and Freddie Mac (together referred herein as “F2”) shareholders are seeking forgiveness of money that is ostensibly owed by F2 to the government in connection with their potential release from conservatorship. The subtext of the media stories is that F2 shareholders, which include many supporters of @realDonaldTrump, are looking for a gift from the President. Nothing could be further from the truth.

As the largest common stockholders of both companies for the last 13 years, we have been leading the charge on behalf of all F2 shareholders to help them to exit from conservatorship. We believe that doing so will enable F2 to maximize the benefits to the U.S. government and the housing finance system while respecting the rule of law and longstanding basic principles of conservatorship.

F2 shareholders don’t have their hands out. The opposite is the case. Hundreds of billions of dollars of funds that belonged to F2 were unilaterally taken by the government years ago, and the companies never received credit for these payments.

F2 shareholders are simply seeking credit for payments that have already been made to the government so that a release from conservatorship can occur. Credit for these payments through the elimination of the accounting balance of the government's senior preferred stock will enable F2 to achieve their full values in the stock market, maximizing recoveries for the government and minority shareholders. Furthermore, we believe that F2's exit from conservatorship will enable the GSEs to operate more successfully and efficiently, with more stable management and at lower cost, greatly benefiting our housing finance system.

The facts around the government’s involvement in F2 are best understood by reviewing their history since the Great Financial Crisis (GFC).

F2 History Since the GFC
As with other financial institutions that required capital during the GFC, F2 received injections of capital from the government in the form of senior preferred stock (SPS). The government funds were invested in F2 on highly onerous terms compared to other financial institutions at the time (other than AIG whose terms were similar).

The terms of the government SPS provided for F2 to pay 10% cash interest, or alternatively paid in kind at a 12% interest rate. The government also received $2 billion in commitment fees and 79.9% of the common stock of both companies in the form of penny warrants.

On August 12, 2012, more than three years after the financial crisis, the Obama administration unilaterally revised the terms of the SPS to provide that the government would receive 100% of the profits of both companies, the so-called Net Worth Sweep.

At the time, the government explained that it had modified the SPS terms because F2 would never be able to repay the SPS under its original terms. At the time this statement was made by the government, the record (revealed during discovery) shows that the government knew that F2 were about to become massively profitable and would therefore be able to repay the SPS, and be in a position to emerge from conservatorship and return value to shareholders. The SPS terms were modified by the Obama administration in an attempt to prevent this eventuality and to expropriate cash that could be directed toward other favored administration priorities.

Months after the Net Worth Sweep was implemented, F2 began generating massive profits as their accountants required them to reverse the large accounting reserves that the companies had taken during the GFC in anticipation of losses that did not occur. In other words, both companies over reserved for losses during the GFC, and when those losses did not occur, their accountants required the reserves to be reversed, generating massive profits for both companies.

As a result of the Net Worth Sweep and the massive profits and cash flows generated by both companies, F2 repaid $301 billion of the original $191 billion invested by the government. As a result, the government has received an 11.6% return on its investment in F2 SPS, 160 basis points more per annum, $25 billion more than the original contractual terms of the SPS.

Despite the $301 billion in payments, F2 did not reduce the SPS liabilities on their balance sheets. Put simply, $301 billion left the companies and there was no accounting for any of the interest or principal payments to the government. The SPS liabilities have therefore remained outstanding as if no payments had been made.

If the payments to the government were not accounted for as interest and/or a payments of principal, what were they and how were they accounted for?

Money can leave a company in only a few ways: as a payment for goods or services to suppliers, rent, wages for employees, interest to creditors, or dividends to shareholders. Each of the above require one or more accounting entries under GAAP accounting. If the Net Worth Sweep payments were indeed payments to the SPS under their revised terms, why were they not accounted for as such?

The fact that F2 never received accounting credit for making $301 billion in payments to the government does not mean that the payments did not take place. While in this conservatorship, the government chose not to account for payments to the SPS, that does not change the economic reality as to what transpired here.

Never before or since has a company in conservatorship made payments to a creditor or preferred stockholder, whether to the government or to a private party, that were not accounted for. All previous conservatorships before or since have accounted for all payments made to creditors. In fact, respecting the hierarchy of claims in a conservatorship is critically important to the ability of financial institutions to raise capital during periods of market stress as no investor will invest in a distressed financial institution if the government can simply steal money from a conservatorship, leaving creditors, preferred stockholders, and common stockholders high and dry.

Here, $301 billion left F2 and went to the government for the benefit of taxpayers, and the liability under the SPS remained outstanding, and has continued to increase substantially.

While Treasury Secretary Mnuchin ended the Net Worth Sweeps in 2017 allowing F2 to build capital, the terms of the SPS were again amended so that their balances would increase with each dollar of capital retained by the companies. As a result, the SPS balances on F2’s balance sheets now total $348.2 billion.

Secretary Mnuchin modified the terms of the SPS in this manner to preserve the government’s control over F2, maintain a strong negotiating position in light of outstanding litigation, and to keep the government in the driver seat in connection with any negotiations in connection with their release from conservatorship. As we have seen previously, under government control, F2 can apparently use whatever accounting it wants for its SPS, but the economic reality is that F2 have built substantial capital of $161 billion since the termination of the Net Worth Sweep, approaching what is required for their emergence.

The press has referred to the potential cancellation of the $348.2 billion balance as a gift from the government to the shareholders of F2. This is not an accurate reflection of the facts. As previously explained, the government has been paid more than it was contractually owed under the extremely onerous terms of the SPS.

The fact that Fannie and Freddie never received credit for these payments, and the SPS balances have increased under Mnuchin’s revised accounting do not change the economic reality on what has transpired here.

Why Is It in the Best Interest of the Government to Cancel the SPS Balance Sheet Liability?

Putting aside the economic reality of the SPS repayment by F2, it is in the best interests of the government to remove this liability from F2's balance sheets for a number of reasons:

First, no private sector investor will invest in F2 in the future if the government can unilaterally revise the terms of F2’s liabilities at will. This will effectively eliminate F2's ability to raise capital to emerge from conservatorship while also impairing the companies trading values, and the value of the government's investment in both companies.

Second, the 'cost' to the government for cancelling the SPS balance is only 20.1 cents on the dollar because the government owns 79.9% of the common stock of F2 through the exercise of its penny warrants, and reductions in a company's liabilities increase the residual value to its common stockholders. In other words, for each dollar of SPS that is cancelled, the government recovers 79.9 cents of replacement value through its warrant ownership in both companies.

Third, while the government could attempt to convert the SPS into common stock thereby massively diluting common stockholders, the cost and risk of the resulting litigation, delay to the exit from conservatorship, and the impairment to the trading value of F2 common stock held by the government would vastly overwhelm the benefit of doing so when compared with cancelling the SPS accounting balance and consummating a release from conservatorship with support from the institutional and retail investment communities.

F2 stock is held by millions of small shareholders and by major institutions that manage money for retail investors such as Capital Group. While the media often depicts Pershing Square as having wealthy investors, our funds are held by thousands of small shareholders as well as pension funds and other fiduciaries that invest on behalf of retirees and other small investors. While the press and some politicians attempt to portray the F2 release from conservatorship as a windfall for the rich, the vast majority of the value created here will go to small investors.

The notion that the Trump administration would act in a manner to wipe out F2 investors for an uncertain and likely suboptimal outcome is extremely unlikely in our view.

For all of the above reasons, we believe that F2 common stock will be an excellent investment for the government, the junior preferred stockholders, and the common shareholders, but the usual precautions remain. Caveat emptor.

[Fanniegate Hero - Fanniegate HQ @DoNotLose]

they dont need capital? https://t.co/hDphdqhF3k

[Fanniegate Hero - Fanniegate HQ @DoNotLose]

Interesting. $FNMA #FANNIEGATE

[Elon Musk @elonmusk]

🤨

[Elon Musk @elonmusk]

Legacy media lies

[Ellie @Mai_ASUR]

@cb_doge

[Elon Musk @elonmusk]

You don’t hate the legacy media enough

[Elon Musk @elonmusk]

🤨

[Doc Cartoon @30yrdream]

Tim Howard provides a little "color" on
@FannieMae and @FreddieMac today on his blog ....
@pulte @potus @FHFA
@SenatorTimScott @BillAckman
$fnma $fmcc
https://t.co/elBnaAmYck