Fannie Mae (FNMA)

[kthomp19]

While it has been sanctioned by the courts it's almost as if supporters of jps relish its standing in the belief that it ASSURES you will be made whole while commons are massively diluted. The reality of that assurance may be very different than you imagine as I'll try to exhibit below.

You appear to have things mixed up here. Glen was talking about a senior-to-common conversion, while your rebuttal is based on the CBO paper which only mentioned that conversion in passing.

In a vacuum, a senior-to-common conversion does exactly what it says in your sentence: the juniors would be money good (they would sit at the top of the equity stack and FnF's net worth greatly exceeds the juniors' total stated value) while the commons would be massively diluted (more so than the warrants, otherwise the senior-to-common conversion would be pointless).

Returning to the $425B estimated required capital for the GSE obligations noted above it is important to look at some historical IPO numbers.

Not with respect to the $425B. Fannie and Freddie will never be able to raise anywhere close to that much capital because the companies aren't worth anywhere close to that.

The CBO's assumption that a capital raise would be done to redeem the seniors at their full liquidation preference was extremely unrealistic in August 2020, and is even more so now that the liquidation preference has increased by over $50B since then.

The purpose of raising capital is to get FnF to their required regulatory capital levels; any money that goes towards redeeming the seniors doesn't go to the companies and thus doesn't raise their regulatory capital. If Treasury wants to monetize the seniors, the only real option they have - given the different types of capital requirements in the ERCF and their definitions (most notably CET1 capital) - is to convert them to commons. Basically super-warrants.

Fully addressing the insane share counts you alluded to in your previous analysis of common dilution would fill the entire space I've used already.

If the "insane share count" is the only problem, just do the reverse split first.

Furthermore, combining the figures I gave you earlier on the share counts of some of the largest global corporations (Apple, Exxon, Walmart, Facebook, Amazon) with the usual the number of shares offered from the top 10 IPOs further dismantles your back of the envelope share count dilution figures - even with a massive reverse split - especially when you look at the accepted literature on reverse splits, the usual ratios and the reasons they are undertaken.

So your reasoning for thinking that there won't be massive dilution is simply that such high share counts and/or massive reverse splits have never happened before? The reasons for other reverse splits don't matter. FnF are in an unprecedented situation (total government control, no fiduciary duty to shareholders, etc.); an unprecedented solution should not be dismissed solely on that basis.

What kind of share price would be paid for a company with such a relatively outsized massive shareholder base whose profits are hampered by a government regulator with severe regulatory capital restrictions under the watchful eye of a dysfunctional Congress looking to buy votes with giveaways to the underprivileged.

Little to nothing by that logic. The former is not good for the existing common, and the latter means FnF would remain in conservatorship until 2028 (if Treasury cancels/converts the seniors) or 2040 (if they don't).