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When you read that the SPS are "excluded" from the statutory/regulatory "Capital Available" in the ERCF tables, it doesn't mean that someone took them out. It means that they aren't in.
As always, the plotters playing with the words.
That is, they ARE NOT considered "available capital", as per the meaning of this financial concept: regulatory capital is any item that has loss-absorbing capacity for Capital Adequacy matters, that is, it takes losses (Either in the statutory definition posted below, or the one laid out by the Basel Committee).
The SPS is called Capital Stock because it's recorded in Equity or Net Worth (due to its Liquidation Right), but they aren't regulatory capital due to its cumulative dividend feature (upon dividend suspension, it's accrued, which is what has happened), estimated at a 1.8% cumulative dividend rate with a 0.5% spread over Treasuries (0.299% spread in the 1989 bailout of the FHLB -GAO report-), taking into consideration the original UST backup of FnF as a last resort in exchange for their Public Mission (section Purposes), at rates similar to Treasuries "as of the end of the month preceding the purchase" (Subsection (c) ANY obligations of subsection (b) REDEEMABLE OBLIGATIONS, where we sneak the SPS "permanent securites, but redeemable. Obligations in respect of capital stock, in the words of the Treasury Department in the SPSPA).
A capital metric is calculated with the sum of its components that have loss-absorbing capacity:
For instance, this is how FnF calculated it in their Earnings reports prior Conservatorship and how I learned that Treasury Stock (stock buybacks), a contra-Equity account (Negative figure. Watch the Balance Sheet) reduces the common stock par value when calculating the statutory capital figures, that isn't contemplated in the statutory definition.
Now, you wouldn't notice it because of how FnF calculate it (upside down): beginning with the total Equity amount.
Core Capital = Net Worth or Equity, less SPS, less AOCI.
The same with the CET1, instead of using its true formulaic with the sum of its components =
+Common stock par value (-Treasury Stock)
+Additional Paid-In Capital account
+Retained Earnings account (- regulatory adjustments)
+AOCI
Also, by calculating it upside-down, it's concealed that the Retained Earnings account is deep in the red. Besides transmitting the idea that the Net Worth is regulatory capital if you begin posting the figure of Net Worth.
But the main objective is to peddle the idea that the cause of the whopping Deficit Capital Available is just because the SPS are excluded. Thus, the regulatory definitions are to blame and the FHFA has done an exceptional job. "Look at the Net Worth!", they add to make their point. When the reality is that it's because of the massive capital distributions during conservatorship ($435B in total= $301B in dividend payments to UST + $132B SPS LP increased for free since Dec 2017 and absent from the Balance Sheets + $2B initial SPS issued for free), despite being restricted, and in violation of the FHFA-C's Rehab power: Put FnF in a sound and solvent condition.
It explains the adjusted Core Capital Available = stuck at $-194B every quarter.
Official Balance Sheets: $-62B Core Capital Available in the ERCF tables ($-23B; $-39B. Link posted above), plus the adjustment for the gifted SPS ($-132B Retained Earnings account).
Resulting in an adjusted $402B core capital shortfall over Minimum (Leverage) Capital Level.
In order to protect a company for the future, it needs capital that has loss-absorbing capacity, not SPS.
And, because it was the taxpayer's assistance (an obligation: a compromise of repayment), the $191B corresponding to the draws from UST (1:1 SPS LP) were repaid first thing in early conservatorship with the assessments sent to Treasury, 1989 FHLB-style: "Separate Account to ensure repayment of principal" under the guise of dividend payments (in order to legalize that they went through despite being restricted, and unavailable Earnings for distribution as dividend), as per the exception to the Restriction on Capital Distributions, U.S. Code 4614(e).
How about protecting US corporations from Commies @FHFA & @USTreasury ?
— Guido da Costa Pereira (@GuidoPerei) July 9, 2024
If US is not a🍌REPUBLIC...
RETURN EQUITY SWINDLED FROM @FannieMae & @FreddieMac !
FREE FANNIE!
FREE FREDDIE!
I am going to put $2 on the Powerball. I am going to dream big for a few hours until after the drawing. 😂
Calling all whales.
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