Fannie Mae-No Politics (FNMA)

[kthomp19]

You need to study financial accounting. The day junior preferred shares are converted to common stock, the GSEs have a combined writedown of $35 B that gets removed from CASH, because that is where the proceeds from the junior preferred shares were recorded when sold. The preferred stock was entered as a minus number as PREFERRED STOCK and a positive balance sheet entry as CASH.

This is what would happen if the juniors were redeemed for cash. In a conversion event, no cash leaves the company so no cash gets written down. The junior pref stock lines would go to zero, but what I believe would happen to balance it out would be an equal increase in the paid-in capital line.

The junior pref stock line in the balance sheet is a positive number, by the way. Entering a negative number in equity and a positive number in cash unbalances the books.

Several people, here,have asked why Moelis retires preferred shares and then sells more, later on. The answer is that slight-of-hand accounting is being used to conceal the motive which is to restore a combined GSE enterprise to where it previously stood and own 50% of its common equity in the new enterprise.

The conversion happens because it costs the companies no cash, and issuing new prefs raises cash towards a recap. This is why I believe it will happen, even if the Moelis plan isn't implemented. It makes too much sense: it raises capital and doesn't cost any. Redeeming them does the opposite, so I don't believe it will happen at all.

How much do you think 50% of the combined market cap for the New F&F will be worth once RRR is complete? $100 B? $200 B? Today the common shareholders would own 100%

That's assuming that a no-dilution release is even possible. I see no reason to believe it is. Anchoring yourself to an unrealistic scenario is what is causing all this incredulity.

This is nothing but a classic Wall Street cash grab, IMO.

I totally agree. What's nice in this case is that we have the ability to be on the side of the big money.

The stars are aligning here, Tim Howard even recognizes it. You can stand on the shore and shake your fist at the coming hurricane, or you can evacuate and pick up the pieces when you return.