Fannie Mae-No Politics (FNMA)

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The Meat and Potatoes:

* Prior to this projected capital raise, we expect the Treasury’s senior preferred stock to be canceled and the junior preferred to be exchanged into common stock at the offering price.

* Pro forma for the exercise of the government warrants into common stock, the U.S. Treasury will own of 33% of Fannie and 29% of Freddie post raise. We expect the Treasury to sell down its stake over a five-year period and to realize $54 billion or more of value.

* It is important to consider that the earnings targets that have been created are shown to be fully diluted and after the capital raise. For Fannie Mae, it sees core earnings estimates of $0.78 per share in 2022, followed by $0.82 in 2023 and $0.86 in 2024. Those estimates for Freddie Mac are $0.77 in 2022, $0.80 in 2023 and $0.84 in 2024.

* The firm also expects that the firms will transition toward dividend-paying public utility models with roughly 4.5% earnings growth on a blended basis and with a low operating and credit expense structure.

* the report projects that the two will pay out approximately 65% of earnings as dividends by the end of 2023.

* Howlett further outlined how the dividends ultimately will trade at close to 7% dividend yields with an expected growth of about 4% to 5% on the annual payouts based on an expected 13% return on equity and 35% retention rate.