Fannie Mae-No Politics (FNMA)

[kthomp19]

Didn't say the would convert to debt.

You said "They could use the liquidation preference as a loan." Since a loan is debt but the seniors aren't, the only way to connect the two I could see was a senior pref-to-debt conversion.

What did you mean by that, then?

They can write off or convert and sell their stake over time as capital builds.

1) Convert to what? That was why I brought up that the only two things the seniors can be converted to that would help regulatory capital levels would be non-cumulative prefs or commons, and only commons if the CET1 capital standard continues to exist.
2) The very act of converting and/or writing down the (first $193B of the) seniors will build regulatory capital. But the $193B of the seniors that are on the balance sheet represent a $193B drag on regulatory capital. Since release is contingent on regulatory capital levels, Treasury won't be able to get any money for its converted shares until after release, and a huge capital raise will still be necessary (at least $100B even at the lowest possible capital requirement in HERA), I can't see them being able to go all that slowly. New investors won't invest a penny while it's possible that part of the seniors could be converted on top of them later.

Probably has more to do with govt accounting. Treasury is already reaping a windfall from incoming taxes through the stimulation of the economy.

The conversion builds regulatory capital, but Treasury doesn't get any money from it until FnF are recapped/released so that the converted shares actually have value to outside investors.

I can see why Treasury would unwind its converted stake slowly (most likely so as not to depress market prices with a fire sale), but I don't see why the conversion would be anything other than all at once.