Fannie Mae-No Politics (FNMA)

[kthomp19]

In addition to his repeated pronouncements that the GSE's will raise their own capital, he has also repeated on many occasions that the entire matter will be PROCESS driven, NOT CALENDAR driven.

Yes, you're right. FnF must do the capital raises because FHFA doesn't have the authority to issue or sell shares. And Calabria knows he can't set a firm date because the series of events needed to get FnF out of conservatorship are not fully in his control. You also left out this comment by Calabria (emphasis added):

"My job is going to be, you have to raise capital, you figure out how to do it. And make sure, I'm going to have to approve how they do it, but it's really going to be on Fannie and Freddie to sell themselves to investors."

It really can't be more clear: Calabria must approve HOW FnF raise their capital. Calabria said it himself, and it's an authority given to him by HERA.

What you have not done is show how these comments you reference disprove any of my points:

1) The boards WILL NOT have carte blanche to raise capital however they want with no input from FHFA.
2) The fact that the $25B gap between the CET1 and Tier 1 capital standards is less than the $33B of juniors outstanding means that FnF selling new non-cumulative prefs while the juniors exist would be useless.
3) The restrictive definitions of core, CET1, and Tier 1 capital actually tie the boards' hands when it comes to how to raise capital.

The only time I know of that he has proposed a conclusion to the conservatorship with a date attached, was when he said he hoped and expected that they would be out of conservatorship by the time his term ended in 2024.

But he has repeatedly said that his target for capital raises is 2021-2022. If you're going to go by one date he mentioned you should go by all of them.

Also, I believe you have misquoted Calabria here. The Reuters article you seem to be referencing says Calabria "hopes" FnF are out of conservatorship by 2024, but makes no mention of an expectation of that happening. In fact, Calabria said the opposite:

“That’s my time horizon,” he said, referring to the end of his term. “I’m under no expectation to try to get all this done. ... So if in four years, nine months they’re not out of conservatorship, I’m not pushing them out.”

As for the GSE's, the one time they expressed public dissatisfaction with Calabria is when they took issue with his capital standards. The indication was that raising that kind of capital would be very difficult. Many knowledgable others have said it would be impossible to do in one raise.

I'll admit that it was unusual, and rather refreshing in my opinion, to have FnF push back some against FHFA. But Calabria will set the milestones, of which the capital standards are the most important. The companies will need to find a way.

As to whether or not one raise is possible, there are differences of opinion. Calabria said last November that he had sources tell him it would be possible. It is probably going to be JPM and MS who will make that determination.

For your own sake, I hope you realize soon that the first in a series of common share capital raises is likely to be at a lower price than a huge, all-at-once capital raise would be. When comparing the two scenarios, the investors in the first of a series are taking much more risk and would therefore demand a lower price.

The overall dilution might be less, but the damage will occur at the beginning. As a common shareholder, hanging your hopes on a series of raises being a desirable outcome could very well turn out to have been a mistake.