Fannie Mae-No Politics (FNMA)

[kthomp19]

*sigh*

In case the interested reader wants to follow along, Fannie Q2 2021 balance sheet can be found on page 6 of this earnings release.

Equity per latest 10Q $37.3 billion
Allowance for loan loss $7.1 billion
Unamortized G-Fees $27.5 billion

The "Allowance for loan losses" is a negative number in the asset portion of the balance sheet. It cannot be added to equity.

If unamortized g-fees were added to equity now, it would prevent the next $27.5B of g-fees from counting towards earnings. Adding these to book equity would, as you like to say, be robbing Peter to pay Paul.

This calculation should result in $37.3B. No more.

Fannie 2020 earnings $11.8 billion
Conservative multiple 12

Fannie value based on earnings = $141.6 billion

Shockingly this is about right, even though I believe you went through a faulty thought process to get there. But it only applies when Fannie is fully capitalized, released from conservatorship, and paying dividends to all its shareholders - none of which are true right now. The actual market value of Fannie's common shares right now, by the Supreme Court's definition, is around $1.3B.

Fannie value based on Equity = $71.9 billion
Fannie value based on earnings = $141.6 billion
Fannie total value $71.9 billion + $141.6 billion = 213.5 billion

Nope, it doesn't work this way at all. You could have a point if you were to take the greater of book value and earnings-times-P/E as the total value, but certainly not the sum of the two. Fannie's total common equity being worth $150B is reasonable, but that equity will be shared among new investors, Treasury (via warrants or senior pref conversion), the juniors (if they receive and accept a conversion offer), and the existing commons.

Bryndon Fisher is asking for a return of $26.9 billion after SPS is written down to 0. This would bring the combined equity to $213.5 billion + $186.3 billion + $26.9 billion = $426.7 billion

Bryndon Fisher is asking for something that he himself admits won't be decided by a court, probably because he realizes that the USCFC doesn't have the authority to write down the seniors at all. Since Treasury will have to voluntarily write down the seniors, it beggars belief to assume they will give up everything the plaintiffs want. That $29.6B isn't coming back.

If David Fiderer is right and Fannie and Freddie did not actually need any bailout, it would be $213.5 billion + $186.3 + $109.5 = $509.3 billion.

David Fiderer being right about that won't affect the forward valuation by a penny because it would only affect the Washington Federal case, which can only result in money damages to shareholders of record as of September 5 2008.

So if you had done your calculations correctly, it means the true value of FnF common shares will be $141B + $90B = $231B. And that will have to be split amongst the four aforementioned groups. FnF's enormous core capital deficit ($307B below the absolute lowest allowed by law) means there will have to be a huge capital raise in addition to the seniors being written down or converted to common.

For those new on this board, Patrick Quinn asked Mark Calabria to allow Fannie and Freddie to include the G Fees they have already received and not yet recongnized as profit, as assets on their balance sheets. From my investigation, this was the practice prior to conservatorship and early on in the conservatorship. The only reason it shouldn't be on the balance sheet is to prevent it from being swept to the Treasury.

That last sentence makes sense. But recognizing those fees as profit now only means they can't recognize those same fees in the future. All that would do is mean no earnings at all until those fees are earned. It wouldn't reduce the size of the necessary capital raise.