Fannie Mae-No Politics (FNMA)

[kthomp19]

They have $67b of CASH capital on the books as of Q3 and i estimate another ~8b of Q4 earnings so $75b of strictly CASH capital today. I am ignoring the senior pfd liquidation preference balance because I am assuming in any recap release they either get fully converted or wiped out to an extent so that negative value is gone.

Okay, thanks for the clarification.

Again, while it might sound like nitpicking, the difference between book equity (what you call "cash capital"), core capital (which will be the same as book equity once the $193B of senior prefs are gone), Tier 1 capital, and CET1 capital is important. Especially when trying to estimate the size of a future capital raise.

Furthermore I am assuming the same for the Jr Pfds (they will probably get converted/exchange to new equity or new pfds or mix of the 2 as the Treasury plan contemplated).

I see. Converting the juniors to commons adds $33B to CET1 capital at zero cash cost (which is part of why I think it is likely to happen), but exchanging them for new preferred shares wouldn't.

Again true "ORGANIC RECAP" is irrelevant IMO as it needs to be a mix of 1-2 more years of retained earnings + equity raise if the admin truly wants to move forward with this I doubt they sit on this for 10 years+ (btw the warrants expire by then). I would not be sticking around for organic recap nor would I encourage anyone else to.

It appears I am guilty of arguing against a point you never made. Apologies. I agree that a fully organic recap (meaning no capital raise ever) isn't in the cards.

I was using a simplistic example to back the government into $100b of warrant value using $200b market cap. I agree that new equity will want a bigger piece of the pie here, and will demand so at a discount to fair value (call it 20-25% discount). They aren't signing up to pay $100b in recap to get $100b of equity at 10-12 p/e. They would probably want access at 6-8x P/E (thats what I would demand as a new recap investor for the reasons you mentioned in your post).

You're not the only one to argue that the re-IPO will be priced at a P/E less than 10, and I agree with the sentiment. I can see the P/E being higher after the capital raise once the share count and earnings stabilize; before that 6-8 makes perfect sense.

Thanks for the notes/discussion.

And thank you as well. It's refreshing to have informed discussions here.