Fannie Mae (FNMA)

[kthomp19]

So no one's challenging the net worth swipe or 3rd amendment?

I never said that.

So your prediction is that the liquidation preference is 100% guaranteed to be 'cashed in' by the federal government, is that right?

Not 100%. Before Collins I thought this had about a 10% chance of happening (that's in the framework post from 2019), now I think it's more like 30-40%.

And if Treasury does cancel the seniors I think there is a 100% chance they exercise the warrants. There is absolutely no reason to cancel both when they face such little liability from potential lawsuits.

So you are saying that it was the board of directors who approved the Citi deal to convert jps to common.

Yes.

Who controls the board of directors?

The common shareholders, presumably. But not every decision the board makes is subject to a shareholder vote.

Here are some interesting bits from pages 331-332 of Freddie's 2019 10-K (emphasis added):

Under Section 304 of our Charter, we are authorized to issue an unlimited number of shares of Common Stock.

Our Board of Directors may increase the authorized number of shares of Common Stock at any time, without the consent of the holders of Common Stock.

Holders of our Common Stock are not granted any right under our Charter or the Certificate of Designation to vote on specified matters in which stockholders in business corporations under state law are typically entitled to vote, such as amendments to our Charter or changes in our capital structure.

That means even outside of conservatorship, Freddie's common shareholders would not have the right to vote on a junior-to-common conversion offer because it would involve a change in the capital structure.

I have seen so many arguments about the rights existing common shareholders have, using generic arguments about voting rights and fiduciary duties. The specific governs the general. Just like the Supreme Court ruled that this conservatorship is different than all others before it, don't assume that common shareholders will have the same rights, etc. that they have with all other companies.

Didn't the previous 'conservator' say he wanted the board of directors to decide on the how to do of a recap?

Are you talking about Citi? They didn't have a conservator.

What percentage of Citi jps were convertible?

If "convertible" means "able to receive a conversion offer", the answer is evidently 100%.

If "convertible" means "did not have Non-Convertible in its contract", the answer is irrelevant.

You seriously believe that the government offering a bailout that can never be repaid and when they were able to repay the government decided to Nationalize the gses is a legitimate and constitutional use of federal government power? What would be the impact on the pspa if there is a trial and it's disclosed to a federal judge that the governments intent was to 'salt the earth with the gses carcasses'?

What you and I think doesn't matter. It's up to the courts, the plaintiffs, and the government at this point.

Moralizing is a poor idea when it comes to this investment. That's why my Twitter profile says "Righteous indignation is a poor investment thesis." It's okay to be mad as hell, just don't fall into the trap of thinking that such feelings will have any effect on the outcome.

1. A pissed off federal judge could do it (which could be appealed for years to come)
2. If the federal government decides it wants to follow HERA and do what they said they would do in 2008, they will have to take a haircut.
3. The federal government realizes that Nationalization is bad public policy.
4. Fresh capital infusions will require the federal government to be less greedy and act more like the nonprofit organization that they are.

1) Which judge, and in which case? The USCFC can't do this, and none of the other plaintiffs want anything more than an unwinding of the NWS, damages for current junior pref shareholders, and/or the seniors cancelled/converted to common.
2) I agree with this. The senior pref liquidation preference is around $241B right now, but the Presidential Budgets from 2020-2022 have hardly budged in how much they value the seniors at, even as FnF have retained earnings. But a haircut on the seniors means at least partial monetization, i.e. conversion to common.
3) This is the whole premise behind recap and release. That doesn't mean the existing common have to make a bunch of money from here, though.
4) Agreed. Keep in mind that the contributors of this new capital will want the capital raise to be as dilutive as possible because that's to their own direct benefit.

A determination by any federal court that the federal government has acted in an unconstitutional or other illegal manner will likely have some impact on the effect and/or validity of the pspa and/or one or more of the amendments.

The NWS has been upheld as valid by the Supreme Court. No case at all, not even Kelly or Washington Federal, seeks injunctive relief against the original SPSPAs.

I don't know what you're expecting on this front. The specific claims made by the plaintiffs and the specific authorities of the court involved matter a great deal. Especially when it comes to the USCFC, which can only award money damages. The idea that anything can happen in a court case isn't right.