Fannie Mae-No Politics (FNMA)

[kthomp19]

I have a feeling Calabria and Mnuchin worry a lot less about current shareholders 'making a killing' than you do.

I'm with you here, but I also believe that if shareholders get killed in the restructuring, it will also be at most a two-day headline and 99.9% of the country still won't care.

As Gabriella Heffesse said in the video "A New Fannie Mae Play" -- for common to be diluted to obscurity it takes more work -- plus it seems like a malicious thing to do - just to be malicious.

It certainly doesn't take more work, just adjusting the offering price and reverse split ratio. Changing two numbers in a document.

As to the effect, it makes some sense. FnF's current common market cap is around $5B. That's the maximum gain for the new buyers in the case of a very low offering price.

However, if the offering price is the $15 that some here are calling for, that's a market cap of $27B. That's a lot of meat on the bone for the new buyers to agitate for.

As to the malicious intent part, I don't think that will be the motivation at all. Nothing personal, it's just business. The more current common shareholders get diluted, the more of the companies' equity goes to the new buyers.

And it's not good policy.

That's assuming that it's FHFA and/or Treasury that push for the low offering price. But it will be the new investors that will do so.

There's no real reason for them to do it for the minimal gain new investors would receive by further diluting <20% ownership. It makes no sense.

As I showed above, the gains are only minimal if the difference between the actual offering price and the "what-if" offering price is somewhat small. The higher the hypothetical high price is (like the $15 above), the more incentive the new buyers have to grab some of the upside, which lowers the price.

I think the equilibrium, the point at which the new buyers won't feel like squeezing any more, will be well under $15, and under $10 as well. The commons don' thave to get "diluted to obscurity" to make them fare worse than the prefs. In fact, they will have to do exceptionally well to not do worse.

Even the Moelis plan has current commons (1.8B) with 11-12% of the final share count (15-16.5B). The 20% number isn't magic by any means.