Fannie Mae-No Politics (FNMA)

[kthomp19]

Follow the money? With control of both Senior shares and warrants, maybe, now Mnuchin has more skin in the game in commons than the hedge funds have in JPS (?).

I am sensing a change in control over the situation. Right now, Mnuchin has a lot more skin the the GSE Game than does Bruce Berkowitz.

If Treasury ends up going past the 79.9% common ownership mark, which they can do without triggering a balance sheet consolidation by structuring the transaction correctly, they lose any incentive to keep the per-share price of the common high.

Also, once Treasury owns commons, it is in their best interests to make the juniors money good because that's the only way the commons are worth anything.

However, Treasury's incentive would then be to grab as much of the common equity as possible. This would be a disaster for existing common shareholders, because now Treasury's incentives would be in direct opposition to theirs as opposed to in alignment. Once Treasury allows itself to have more than 79.9%, it gains a dollar for every dollar existing common shareholders lose.

What you're describing (seniors converted to commons) is easily the worst-case scenario for existing common shareholders, and has the added insult-to-injury of making the prefs worth full par.