Fannie Mae-No Politics (FNMA)

[kthomp19]

I just don't believe there will be a dilution solution nor instant recap

One point I have made recently, after looking at the numbers, is that FnF's enormous deficit to the lowest possible capital requirement in HERA is only slowly shrinking as they retain earnings. A large capital raise will be required whether it happens now or in 5 years.

Right now it would be $115B if the requirement is lowered to 2.5% (from the current 3%) and the seniors are converted/cancelled, and that only falls by a few billion per year because FnF's balance sheets are expanding so quickly. I have used $100B as the ballpark raise size for a long time, and I haven't seen any numbers yet that would suggest something meaningfully smaller.

In addition, Treasury has no incentive to cancel both the seniors and the warrants. One or the other will become a whole mess of new common shares.

Put bluntly, the numbers tell me that dilution is the only solution.

I know you and many long term jps are set in your ways

How so?

If I think that massive dilution is inevitable and that the juniors will outperform the commons from any ratio I have seen in the last few years, why would I have a reason to own the commons?

If the ratio ever hits a certain point, probably around 10:1 on FNMAS:FNMA, I would be willing to switch over to commons. Not with too much, though; I will have enough money to easily retire if the juniors just hit 75% of par, and if the commons defy my expectations and outperform the juniors anyway I will have (at least) 100% of par and won't really care anymore.