Fannie Mae-No Politics (FNMA)

[kthomp19]

IMHO, the worst quagmire is too much risk with too little potential reward.

The "quagmire" comments are quite amusing, and are clearly seen to be self-defeating when one looks at the bigger picture. From Tim Howard's comments:

1) He advocates for a junior-to-common conversion: "(It also would clear the way for a rapid conversion of the outstanding junior preferred to common, to allow Fannie and Freddie to issue new non-cumulative preferred at today’s much lower dividends.)"
2) He thinks the commons cannot be valued until the final share count is known: "And the return to an investor in the common shares also will depend on the number of shares outstanding, which until full capitalization is attained will remain unknown."
3) He thinks FnF's P/E multiple will lag that of the market even post-conservatorship: "(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)"
4) He believes junior pref dividends will turn back on when capital is raised: "At that point Fannie and Freddie can go to the market to raise the additional equity needed to meet their capital requirements, and once they do they can return to paying dividends on their common and preferred stock." That defeats the common nonsense argument that the juniors will lag behind due to their dividends staying off for years and years.
5) Most importantly, Tim Howard owns both common and preferred shares but only sold some of his commons. Actions speak far, far louder than words. The tax loss excuse is quite flimsy because such a sale wouldn't happen in January.

Tim Howard does get some things wrong (contrary to his belief, a senior-to-common conversion would have the exact same effect on all capital types that a senior pref cancellation would), but his handle on the situation as a whole is quite good overall. Focusing on his "quagmire" comment to the exclusion of the bigger picture is an exercise in willful ignorance.

In other news, Dick Bove flip-flopped yet again today, probably because he stepped outside and saw his shadow.