Fannie Mae-No Politics (FNMA)

[kthomp19]

The US government cannot own shares in a private company. That's why they get warrants, not shares. Warrants the US got for other companies were sold prior to exercise. It is not clear whether an "Exercise and Sell" trade would be legal since there may be a millisecond while the government owned the shares, but exercising and holding is clearly illegal.

I don't believe this is correct. According to this press release from December 2012, Treasury had over 234M AIG shares (actual shares, not warrants) that it sold in a public offering. That provides a counterexample to your argument, as does this Citi share sale by Treasury in 2010.

The F&F warrants specifically allow the government to sell them - that's how they would do it. They would sell them for the current price of shares minus the exercise price which is basically zero. They might sell at a discount if they want to reward some potential buyer. They might even sell them to fannie and freddie for just the option price if they felt like it.

Sometimes selling warrants to the parent company is part of the recapitalization plan. The companies can then sell those shares on the open market to raise cash instead of doing a secondary IPO. They did that with AIG as I recall.

Treasury did sell its AIG warrants back to AIG in 2013, but that was separate from the share sale linked to above.

FnF buying back the warrants, for whatever price they could negotiate, doesn't really make sense to me anyway. They need to be building capital, not spending tens of billions of dollars buying back warrants they don't need. Treasury simply exercising the warrants and sitting on the shares is the cleanest way to resolve them and allow new common shares to be sold.