Tim Howard from yahoo board...
"Anonymous2 hours ago
from Tim Howard's desk *Fannie has a P/E now, and it’s less than 1. The company’s third quarter 2020 earnings were $4.23 billion, or $16.92 billion annualized. As of September 30, 2020, Fannie had 1.158 billion shares of common stock outstanding, but Treasury also holds warrants for another 4.6 million shares, resulting in 5.76 billion fully diluted shares outstanding. Fannie’s third quarter earnings per share (annualized) thus are $2.94, which at yesterday’s closing common stock price of $2.40 makes for a for a price-earnings (P/E) ratio of 0.82.
Why is Fannie’s P/E so low? Four reasons. First, Treasury holds $120.8 billion in senior preferred stock in Fannie, that if converted to common (which I believe is highly unlikely, but it has been discussed) at today’s share price would result in an additional 50.3 billion shares of common outstanding but no new capital; second, at December 31, 2020 Treasury will have a liquidation preference in the company’s assets of $142.3 billion; third, Fannie currently has $19.1 billion in junior preferred stock, which at some point will likely either be paid off or converted to common in order for the company to add new, lower-cost noncumulative preferred to its capital structure, and finally FHFA’s final capital requirements have left it more than $150 billion short of being classified as fully capitalized.
Of these four reasons, the existence of Treasury’s $120.8 billion in senior preferred stock and $142.2 billion liquidation preference is clearly the most important factor holding down Fannie’s common stock price (and P/E). That’s why press articles speculating on the elimination of the net worth sweep and the liquidation preference have such pronounced market effects. If and when the senior preferred and liquidation preference are eliminated, Fannie’s stock price will then be driven by the market’s assessment of (a) how many new common shares will need to be issued before the company can fully meet its capital requirement; (b) how much of an impact will FHFA’s new capital requirement, other regulatory actions and the payment of a commitment fee for Treasury to leave its Senior Preferred Stock Agreement in place (which it will need to do in order for the yields on Fannie’s MBS to remain near current spreads to Treasury securities) have on the company’s sustainable earnings power, and (c) how will the market evaluate Fannie’s political risk in general (pre-conservatorship, Fannie’s P/E averaged only around 60 percent of the market multiple, largely, I believe, because of the perception of political risk, which won’t have diminished following the experience of the past twelve years).*"
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