Fannie Mae-No Politics (FNMA)

[kthomp19]

Please do not exaggerate: Moelis reckons with retained earnings of 54 billion dollars.

For the three year period 2019-2021, you're right. In fact, it's a bit higher ($56.9B).

However, both Otting and Mnuchin have said that they want the companies out of conservatorship by the end of this presidential term. That's only 2 years away, so that's all the time they have for a recap. Moelis projects combined FnF earnings of $14.8B for 2019 and $19.5B for 2020, a total of $34.3B.

Watt's $103B of core capital projection is the most optimistic official one I have seen. He also suggested $139.5B as another possibility. Both of those numbers are lower than what Calabria has suggested. That means that a minimum of $40.3B will be available for core capital: the $6B the companies hold now (due to the December 2017 letter agreement) and the $34.3B in retained earnings.

That leaves at least $60B to make up in two years. The $25B in new prefs is only available if the juniors are partially converted (to avoid having the capital structure be too pref-heavy), and the conversion brings its own dilution. That $60B will be dilutive to current common shareholders whether there's a conversion or not.