Fannie Mae-No Politics (FNMA)

[kthomp19]

The underlying process of actually writing-down the senior preferred stock (with some cash returned) and a credit to the retained earnings accounts would be a matter for the parties to work out, not the USCFC.

Then why did you say "we're asking the court to order" the seniors be written down when the USCFC wouldn't be part of that discussion?

Is your amended complaint still under seal? If not, could you please point me to where in your complaint you ask for such a recharacterization of past payments?

But what I’m proposing is really no different than what the Collins plaintiffs are requesting – a 193.5-billion-dollar write-down of the senior preferred stock. They’re just not asking for an additional $26.9 billion, like what I’m proposing.

The Collins plaintiffs had asked for that extra money (I calculated $28.9B, close enough) prior to the Supreme Court ruling, along with an alternative remedy which left the seniors intact and had Treasury paying $125B in cash to FnF.

In their recent brief to the Fifth Circuit the Collins plaintiffs changed their requests to only a zeroing out of the senior pref liquidation preference or a conversion to common stock because those were the two possibilities given in Treasury's September 2019 housing reform plan. One of those two (or some combination of both, i.e. a partial writedown and partial conversion) is necessary to restore economic value to existing (non-Treasury) shares and thus to any potential new shares offered.

The conversion would put Treasury on par with (for the existing common) or below (for the existing juniors) all other non-Treasury shareholders in terms of liquidation and dividend preference, restoring those rights to existing shareholders.

Well, no plaintiffs are asking that the senior preferred shares remain intact, so it probably won't end up that way.

What each court has the authority to do also matters. The USCFC is for money damages cases against the government. Do they even have the authority to recharacterize past payments and write off the seniors, especially when the original unchallenged SPSPAs didn't allow for that?

I've said it elsewhere but I will say it again: the $125B cash return (with the seniors kept intact) is the only remedy I see that unwinds the NWS, conforms with the USCFC's stated authority, and does not violate the original SPSPAs.

The Collins plaintiffs' proposed remedies can be different because their case is not in the USCFC.

So, maybe you could provide me and others with the steps needed to accomplish a full conversion of 2 million senior preferred shares that have an effective stated value of $96,742/share into common shares.

The cleanest way to do this is to convert the seniors to zero-dividend non-cumulative preferred shares (with a total liquidation preference of $230B) that have a mandatory conversion to common (at a fixed, known rate) if owned by anyone other than Treasury. This has many advantages:

1) Core capital instantly rises by $193B (FnF combined).
2) Treasury never owns any common shares at all, avoiding both balance sheet consolidation (optional at 80% and mandatory at 95%) and any majority shareholder (> 50%) concerns.
3) Treasury gets to dispose of its stake at its own pace, avoiding a fire sale.
4) On the other hand, these new prefs have no value to Treasury outside of sales to outside parties (at which point they convert to common), giving Treasury no incentive to hold on to its stake.
5) With a high enough conversion rate Treasury should be able to recoup the estimated value of the seniors (around $110B in Presidential budgets).
6) The warrants become superfluous and can be cancelled; the total number of common shares Treasury gains from converting the seniors would dwarf the number of warrant shares (7.2B if exercised now) anyway.

I’m assuming this conversion would be structured such that Treasury would realize (yet again) their current value of $193.5 billion, would that be correct?

Not really. The exact dollar amount Treasury ends up realizing couldn't be predicted with that much accuracy; the $193.5B number would stop mattering post-conversion anyway. The warrants' stated purpose was to provide enhanced value to the taxpayer, so I'd expect a senior-to-common conversion to have the same end in mind (along with allowing a third-party capital raise to happen).