Fannie Mae-No Politics (FNMA)

[kthomp19]

You have the right idea here. It's easy to bandy about share price estimates, but far too many ignore the elephant in the room: the share count. Kudos for pointing out that it will dramatically expand, and it's worth mentioning that this will happen at release and thus before existing shareholders get to elect a board of directors.

I do wonder about some of your numbers, though. Are they for Fannie alone or FnF combined?

The companies are trying to conserve cash so they will need to make a deal with the JPS to convert to common at say $3.

The conversion won't be about saving cash, but instead boosting CET1 capital and allowing the common raise size to be easier to conduct.

Companies now have $45 Billion retained earnings, $35 Billion from the Treasury, $35 Billion from JPS conversion, $115 Billion total. Raise $70 Billion and they are out of Conservatorship.

Don't forget that the exit threshold is based on CET1 capital. That means the junior-to-common conversion does add $33B, but the starting point is not $45B but instead -$11B.

Companies now have 19 Billion shares outstanding, Company worth $300 Billion, 23% = $70 Billion, 23% of 19 Billion shares = 4.4 Billion shares.

You appear to be combining companies here so the capital raise number is $140B ($70B per company).



All in all, a good post. Tweak the numbers to be more accurate and you will get a more accurate (i.e., lower) share price estimate.