Fannie Mae (FNMA)

[kthomp19]

A wipeout is off the table. Calabria finally put that one to bed yesterday.

There are four main sources of dilution risk to the commons, all of which are perfectly legal:

1) Junior-to-common conversion (which Calabria mentioned as a possibility)
2) Treasury's warrants
3) Senior-to-common conversion
4) Secondary offering(s)

#2 and #3 are mutually exclusive, but I believe that one of them is almost certain to happen (most likely the warrants). #4 is a certainty too; Calabria said that retained earnings only are far too slow. The only other ways to raise core capital are new common shares and new non-cumulative prefs, and tilting the capital structure too far to prefs is a bad idea for many reasons.

All said, I maintain my price target of $5-8 on the commons at the end, with a small possibility of something much lower.