Fannie Mae-No Politics (FNMA)

[kthomp19]

Why are we all arguing over negative core capital...?

Because the false idea that FnF don't have negative core capital leads to the false idea that FnF don't need to raise capital at all. This likely stems from an unwillingness to accept that a large amount of dilution to the commons is coming.

When Calabria says FnF will have to have a large equity raise to exit conservatorship, as he did at 7:03 of this CNBC interview, he must be taken at his word. FnF will have a big equity raise, and it will heavily dilute shareholders as Calabria said at 8:13 of this Bloomberg interview.

Its simply on the financial sheets to remind everyone that the PSPAs need to be addressed before conservatorship can be exited.

Exactly.

The reality that many common shareholders refuse to accept, though, is that one of these two dilutive scenarios is essentially guaranteed to happen:

1) Treasury extinguishes the seniors, returns $25-30B to FnF, exercises the warrants to recoup the outlay (and perhaps more), and FnF perform the capital raise Calabria mentioned.
2) Treasury returns $125B to FnF and converts the seniors to commons (which crushes the existing commons into almost nothing) to recoup the outlay.

Treasury will never both cancel the seniors and return $125B, and no court can order both of these things. Even a win by the plaintiffs in Sweeney's court would only result in the $125B return. It wouldn't affect the seniors at all.

Its just accounting... I think you guys are thinking in terms of cold hard cash.

Yes. Core capital is simply the sum of specific accounting entries according to the law.

The inconvenient truth for the other side of the argument I'm in is that FnF's core capital is negative (as proven by the 10-K filings) and that FHFA must, by law, take core capital into account when assigning capital classifications. The rule of law demands it.



Allow me to thank you for your contributions and civility in the discussion. In case you have not done so, I suggest referring to the pyramid in my signature, deciding the level on which each post resides, and basing credibility assignations on the results.