Thursday, January 10, 2019 9:29:39 PM
If one does not believe in conspiracy theories in which the government makes lazy compromises to deliberately rip off common shareholders, then one can reduce recapitalization to a simple denominator:
Fannie Mae's current value with complete recapitalization:
200 billion dollars
Required capital: 110 billion dollars
Value of outstanding shares including warrant: 90 billion dollars
PPS: about 16 dollars
The numbers are realistic. The warrant would be exercised. No retained profits taken into account: 26 billion dollars in 2 years. No reduction of the footprint.
If Fannie were downsized by 50%:
PPS: about 8 dollars
I don't think it can get any worse than that. Capital requirements will remain similar. SIFI status is nonsense. Calabria only suggested this because it promoted his career. These are the little things that Otting will do so that Calabria can save his face.
Rather the profits will be retained and the bill should look like this:
Fannie Mae's expected value with complete recapitalization:
200 billion dollars
Required capital: 110 billion dollars
Retained earnings: 26 billion dollars
Value of outstanding shares including warrant: 116 billion dollars
PPS: about 20 dollars
The SPS needs to be devalued in each RR scenario in order to end the NWS lawsuits and enable recapitalization to occur at all: initial liquidation preference: $1B, that's it.
These figures are for orientation only and do not constitute a buy recommendation. My aim is to show how the companies' value can be easily calculated taking different outcomes into account.
GLTA, Fully
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