Fannie Mae-No Politics (FNMA)

[kthomp19]

If Conservator’s rights include (for now) the JPS shareholders’ certificate right of a 2/3 vote, then, cannot FHFA today simply direct each GSE’s board to cancel JPS?

I believe this argument has been tried in the past. Technically this should be possible, but there is a lot of potential legal liability due to Lamberth already allowing breach of implied covenant of good faith and fair dealing claims to move forward with regards to the NWS. A straight up cancellation of the juniors, or anything else more detrimental than the NWS, will easily clear that bar, and more claims than just that breach would be tacked on.

There's also the point that straight up cancelling the juniors would actually reduce FnF's core capital by $33B, while having no real beneficial effect to FHFA (it wouldn't end the existing cases) and basically making it impossible to ever raise capital in the future. Common investors know going in that they can be diluted; even 99+% dilution wouldn't violate investor expectations, especially with the warrants in existence. Preferred investors can never expect their shares to be straight up cancelled, especially 13 years after the only reasonable chance there ever was to do so (Calabria said before that he thinks FnF shareholders should have been wiped out in 2008).

And in the end, if cancelling the juniors was a viable strategy I would have expected FHFA to do it a long time ago. Why now? What good would it do, especially to counterbalance the harm?

In place of JPS holders, the FHFA-C would vote, and I can guess which way the vote would go.

Exactly.