Fannie Mae-No Politics (FNMA)

[kthomp19]

I dont see how this post is of "extreme bias" when the post provided calculations for two scenarios, one with and one without warrants being exercised.

The calculations weren't biased, just extremely unrealistic. Garbage in, garbage out.

The bias came from the moral stance taken regarding the warrants, which is wholly irrelevant, and the statement that the existing common shareholders are the "rightful owners" of the company: another irrelevant moralizing stance.

This is not true. The company has value, the value is not the capital requirements ALONE. It's baked into it's business/moat/people/gse status and of course reflected in PE which they would be paying for.

The capital requirements are what determine if and when FnF can be released from conservatorship. So you could calculate the proportion of the overall common equity attributable to the new investors based on two things: contribution to the capital requirement (as I did with the >75% discount) or an earnings-times-P/E market cap approach.

I used the latter in this framework post and came up with a best-case scenario of around $8 on the commons, and that's with a capital raise of only $100B (FnF combined).

There are 100B market cap companies which are not making any profit (tech companies) that keeps selling shares below market close to raise funds in subsequent offerings. Some even do it twice a year. Tesla sells more shares when it suits them too.

Apples and oranges. FnF are not growth companies, they are cash cows. And they will likely be treated (by both the regulator and investors) as utilities once released. Investors in companies with utility-like profiles are interested in income and stability, not potential huge growth down the road. Tech companies are on the complete opposite end of the spectrum.

While I appreciate your legal views on the court proceedings I find it really biased you don't see the government retiring the seniors at all.

1) Why would Treasury cancel the seniors voluntarily when they could convert them to commons instead?
2) I believe the Collins ruling basically closed the door on a court cancelling the seniors. None of the Lamberth or USCFC cases ask for this remedy, and while the Collins plaintiffs themselves are asking for this, they would be just as happy with a conversion to common and Justice Thomas pointed out that this retrospective relief possibility is tenuous at best.
3) On top of all that, my framework post assumes the seniors get cancelled and still can't manage to get above $8.
4) You accuse me of bias when I assume the seniors will be converted, but don't accuse the previous poster of bias for assuming the seniors will 100% be cancelled? You can't have it both ways.

Holding commons is a bet on recap and release which needs the seniors to be considered repaid.

As I showed in the framework post above, even recap and release with the seniors cancelled gives a best-case scenario of $8. That's an 8-bagger from here, which is pretty good. But there is also potential downside even from today's prices.

I'd like to see your calculations using that framework if you don't mind.

No new money is coming in if its to owe USD 200 B to Treasury on top of the capital requirements.

I agree. Redeeming the seniors for cash doesn't make sense for anyone.

When it comes to cancellation or conversion to commons for the seniors, it is easy to see which of the two options Treasury would prefer. (Conversion to anything other than commons prevents new commons from being sold)

I have been toying with another scenario where $193B of the seniors get cancelled/converted and the rest ($49B at the moment, which rises dollar-for-dollar with retained earnings) gets kept intact. Treasury would be able to claim 10% of that amount, which in two years would be around $90B, every year. This gives Treasury a cash cow while leaving enough earnings to pay dividends to junior pref and common shareholders.

You can be right with all ur legal views and its still ok with the commons as long as there is a feasible recap and release and that is what the original poster presented.

I do think the commons will most likely be worth mid to high single digits. That's definitely okay from here (~$1).

But the other poster did not present a "feasible" scenario, that was the point of my post. 20% is not even close to an "extreme" discount, and a $230B market cap for Fannie alone is beyond optimistic.