Fannie Mae-No Politics (FNMA)

[FOFreddie]

Hi Kthomp

Is it possible for UST to convert the SPS to common and then relinquish the newly converted common capital back to the GSEs as a settlement of the derivative claims? FNMA and FMCC and then resale the newly issued shares to the public to replace the UST shares with cash proceeds.

This in effect would benefit the value of the UST warrants and the existing common on a pro-rata basis in the GSEs resale the UST settlement shares at a premium to book which seems plausible.

If the UST converts it SPS for 100 bn at 1 bn per share and then relinquishes ownership of these 100 shares - the proforma capital of the GSEs would be 100 bn plus the 20 bn of current net worth plus the 30 bn of JPS. If UST settlement shares could be resold at 2X book - existing shares and UST warrant BV would increase from 20bn to 2/7 of 120bn or 34.29 bn.

Of course the key is reselling UST settlement shares at a premium to book which seems very doable based off a reasonable P/E. If the GSEs need more cash equity more of the settlement shares could be sold over time. Any sale above BV would benefit the value of UST warrants and existing common