Fannie Mae-No Politics (FNMA)

[kthomp19]

I appreciate the calculations, and they do make sense...given the premise that the senior-to-common conversion rate would depend on the then-current market price of the commons. I used to assume this when making calculations about a junior-to-common conversion.

But why would the conversion rate have to depend on the market price of the commons at all? Treasury only has to negotiate with FHFA, who has no fiduciary duty to shareholders. If they want a dilution factor of 200 as a condition to let the seniors go, who is going to tell them no?

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.

Very reasonable numbers here.

I think the new money will want 50% of the equity at a bare minimum, but might insist on upwards of 80% if they are tapped for a large enough amount and insist on a very low price to make up for the high amount of political uncertainty involved. They might even insist on so much that there won't even be $33B left for everyone else (Treasury, juniors, existing common), meaning the juniors wouldn't accept a conversion at all because the only one they might accept would wipe out Treasury's stake entirely.

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.

Again, this is plausible given your assumption that the conversion will depend on market prices.

Even with that assumption, though, there is no reason for the short selling to be happening now. FnF are nowhere close to ready for a capital raise.