Fannie Mae-No Politics (FNMA)

[kthomp19]

The 4th Amendment - which was given additional weight by the Scotus Opinion because it alleged that the Collins plaintiffs' demand for termination of the NWS had already been met - sets a deadline of Sept. 30, 2021, by which time a plan for recap/release is to be submitted.

That deadline is very soft. Or, more accurately, the requirements made of FHFA and Treasury in the letter agreement for that deadline are very soft.

All it says is that those two agencies "should endeavor to transmit a proposal that details this work to both Houses of Congress on or prior to September 30, 2021." If FHFA and Treasury claim that such an endeavor failed, who can second-guess them?

Even though FnF's CET 1 capital is currently negative, a SPS-to-common conversion would delete the SPS on the balance sheet, bringing CET 1 well into positive territory, so that the missing capital to reach CET 1 of $175 billion (2.5% minimum) could realistically be raised?

If the seniors were to be cancelled or converted to common today, FnF's combined CET1 capital would be barely positive. $4.9B for Fannie and $1.6B for Freddie.

(To calculate this, take book equity on the balance sheet and subtract out the following: junior prefs, AOCI, common stock value of $687M for Fannie and $0 for Freddie, and DTAs)

The letter agreement doesn't allow for capital raises bigger than $70B, and inexplicably the same cap applies to both Fannie and Freddie.

I never did see exactly what adjustment is applied to balance sheet assets to arrive at "adjusted total assets" (upon which the 3% CET1 exit requirement is calculated), but I used +4% as a ballpark. Based on that, Fannie's exit requirement is $130B and Freddie's is $88.7B. So a $70B capital raise for each would be $55B short for Fannie and $16B short for Freddie.