Fannie Mae-No Politics (FNMA)

[Jreinhold]

The question I have is:

If the warrants were for future ownership of the company if it was thriving, that could be exercised at any time, why didn't they just flat out take ownership of 79.9% of the common shares at the beginning? (I do understand the idea of the warrants being a call option to purchase stock at .00001 at a later date)


Either way if they lose and the company goes broke they exercise the warrants and pull whatever they can out of them. You stated that the warrants are lower on the waterfall than commons, so why not just take the 79.9% flat out so that if the company liquidates you get the most value you can back.

If the company thrives you exercise the warrants and you pull whatever you want out from them anyway, so why not just make it common shares since the warrants and shares would essentially have the same value?

I understand the warrants are already factored into FnF's earnings statements and thats why there's... what, nearly 7 billion shares outstanding (rough number) for fannie mae.

If this was meant to be a 100% taking in terms of the 79.9% ownership in warrants then why don't they currently just own the shares outright instead of having warrants on stand by that can be exercised at the discretion of the treasury (currently advised by congress till 2018).

I guess I just don't understand why they would make something able to be terminated at the discretion of the two parties involved if they were intent on exercising them right from the get go anyway. Majority equity ownership? Maybe, but its already like they own 80% of the company anyway. They make the decision for them and own them pretty much outright with the NWS. Would having the majority share ownership and voting rights make much of a difference at this point?

It was my understanding that warrants were set in place to reduce the ability of shareholders to profit from any of the activities of the conservator that ended up making them profitable until the treasury got it's money back. This is why I thought the warrants were insurance to treasury that they could minimize their losses if the GSEs liquidated and were unable to be saved.

I look forward to hearing what you have to say. I am relatively new to investing and I haven't been around on this board very long comparatively to people like you and navy and obit.