Fannie Mae-No Politics (FNMA)

[LuLeVan]

Currently there might be short sellers who are also acting in the interest of the U.S. government (I can't prove this, of course).

Below I have calculated the benefits that would accrue to the U.S. government if the SPS-to-common stock conversion occurs at a particularly low common stock price.

Calculation A assumes $2.50 common stock price at the swap
(dilution factor = 44)

Calculation B assumes $0.80 common share price at the swap.
(dilution factor = 135)

I assume that the market cap (MC) after recap/release will be $250 billion, and that $100 billion (40%) of this "pie" would go to the government (possible SPS swap, warrant exercise), the JPS and the common shareholders.

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CALCULATION A: (high share price).

Assume FNMA were still at $2.50.

Then the MC of the common stock would be 1.8 billion shares x $2.50 = $4.5 billion.

In case of a SPS-to-commons swap the dilution factor would be

($193 billion + $4.5 billion)
----------------------------------- = 44
$4.5 billion

Leaving JPS out of the equation, the old common shareholders would receive (of the $100 billion pie to be distributed):

$100 billion divided by 44 = $4.38 billion,

....and the government would receive $100 billion - $4.38 billion = $95.62 billion

$4.38 billion (existing shareholders' share) divided by 1.8 billion common shares = $2.43 (target price after recap/release)

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CALCULATION B: (depressed price).

Let's assume that the short sellers succeed in pushing the FNMA price to 80 cents and hold it there.

Then the MC of the common stock would be 1.8 billion shares x $0.80 = $1.44 billion.

If the SPS were swapped into common shares, the dilution factor would be:

($193 billion + $1.44 billion)
------------------------------------- = 135
$1.44 billion

Again, leaving out the JPS, the old common shareholders would receive (of the $100 billion pie to be distributed):

$100 billion divided by 135 = $0.74 billion,

....and the government would receive $100 billion - $0.74 billion = $99.26 billion

$0.74 billion (existing shareholders' share) divided by 1.8 billion shares = $0.41 (target price after recap/release)

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CONCLUSION: The more the share price is depressed prior to the announcement of the recap/release, the greater the dilution factor in the SPS swap (and also in the JPS swap, if that were to come in addition).

Therefore, it could well be that there are "interested parties" who are depressing prices out of pure self-interest.

This is just some background information on who the "evil short-sellers" might be.