Sunday, November 21, 2021 8:06:16 PM
Because FnF's core capital right now is negative $126B. Meanwhile, the lowest possible capital standard in HERA is $175B.
That's a gap of three hundred and one billion dollars. If you're hoping for a retained earnings-only recap it will take multiple decades. Therefore if FnF are to be released any time in the next 25+ years, their equity will have to be restructured.
Just to emphasize, this assumes that FHFA makes the capital requirement as low as the law will allow. That means "but what if the capital rule is lowered?" is already taken into account.
At some point you need to realize that "building capital every quarter" is not a yes-or-no matter. The amount is hugely important. The capital requirements keep on rising so it's not a simple matter of dividing the deficit by current earnings (even though if you take that naive approach you still get a earnings-only release date well into the 2030s).
The director of the FHFA, who helped write HERA no less, said that FnF exiting conservatorship will be like a normal bankrupt company (he used Hertz as an example) exiting bankruptcy. That involves a debt and equity restructuring.
(The debt won't need to be restructured because FnF have positive net worth)
The signs are clear. Ignore them at your peril.
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