Fannie Mae-No Politics (FNMA)

[kthomp19]

He was valuing the business without making adjustments for anything beyond earnings. Rather than valuing the business the simple route of 10x earnings, he went into detail. He's intelligent enough to know that after recap, dividends, and the possibility of warrants being excercised, that this company is worth nowhere close to $100 per share.

Okay, so $75-100 is absolute best case unrealistic unicorns and rainbows scenario, because it assumes that Fannie will get its capital buffer from thin air and no warrants exercised.

What I'm trying to do now is see exactly how much money Fannie actually received from the government and how much of it was advanced from Treasury for the sole purpose of sending it right back. According to TH717 (yeah, I know lol), FnF combined got $187B of bailout money but $55B of it was immediately sent back. This means the bailout money has been completely repaid plus $125B.

A settlement, then could either have the government give back the excess and keep the warrants, basically an instant recap with no dilution until the government starts selling its shares, or keep the excess money and cancel the warrants (more likely because politicians will never want to write a huge check like that).

I can't see both the recap AND warrants hurting shareholders, a settlement has to actually gain something for the plaintiffs. I know a return to par would satisfy the preferred shareholders plaintiffs like Berkowitz, but Ackman will definitely push for more.



By the way, I see that you tend to insist that dividends be deducted from earnings before doing a 10x P/E multiple, thus reducing the commons' value in a projection. Doing a very rough calculation (only using earnings and share counts from 10-K reports and share prices at the end of those years), I got P/E ratios of 11.2, 9.4, 12.7, 7.6 at the end of 2003, 2004, 2005, 2006 respectively, for an average of just over 10. These take into account dividends already paid during those years.