Fannie Mae-No Politics (FNMA)

[YanksGhost]

<< ... you're coming from the perspective of the common shareholder. What do you think FHFA and GSEs care about more? >>

Wrong on all accords. First, I am coming at this from the perspective of an investor who has 3 options from which to choose. Buy FNMA common shares. Buy FNMA junior preferred shares. Buy neither and move onto another potential investment. I have no preference except to choose the route that maximizes my gains. I have no especial preference. I invest for a living. That is ALL I do.

The fallacy in your analysis is your assumption that there is some free pass by avoiding $500 M in junior divvies and converting $19 B in pref equity to common shares. That leaves FNMA in the corner of ONLY having the option to float gobs of additional common shares in order to raise capital. Nobody in their right mind would buy any new junior preferred shares in Year 3 (as envisioned by Moelis) if the former JPS were held in prison for 10 years and then discharged with no dividend ever paid as they were converted to common shares in some mandatory and authoritarian manner that may not suit the JPS purchaser's risk tolerance or expectations. Think this is a minor matter? Guess again. Look at how many of the legacy JPS shareholders who are litigating are thrifts, S&L's and insurance companies who are required under the prospectuses and regulatory agencies that bind them to maintain conservative risk portfolios met by preferred holdings with liquidation preference and not met by common share holdings... especially those at very low S/P as they presently sit.

When it comes to Fannie Mae,there are no simple courses of action and no easy paths to recapitalization. You make a huge mistake by over-simplifying and avoiding the financial traps that RRR has in store for Mr. Mnuchin.

What may surprise you is that I think I absolutely do know what Fairholme's motive is. It is, consistent with Berkowitz's long term investment thesis, to buy contrarian positions in undervalued plays, and have the patience to ride them out to a big win for his shareholders. In this regard, I take the man at his word. Only time will tell how well FNMA will suit his goals.