Fannie Mae-No Politics (FNMA)

[kthomp19]

Tim Howard:

"With a $70 billion cap on both companies’ external capital raises while in conservatorship, Fannie would need to retain at least $46 billion in earnings (and more with growth) to meet the 3% capital threshold, while Freddie only would need to retain $13 billion. It’s also curious (to me, at least) that Treasury would think either company could raise $70 billion in outside capital while still controlled in conservatorship by a hostile FHFA director."

Now subtract $19B for Fannie and $14B for Freddie because a junior-to-common conversion adds those amounts to CET1 capital.

If Freddie raised the full $70B in commons and got their junior pref holders to accept a conversion to common, they could be released immediately. Fannie would need about 3 more years of retained earnings to hit the same level.

The road isn't nearly as long as some think. Note that Section 5.3(b) of the amended document envisions FnF exiting conservatorship upon completion of an equity raise. I would quote it but the document appears to have been scanned in and I don't feel like typing it all out. See the end of page 7.

https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Fannie-Mae.pdf