Fannie Mae-No Politics (FNMA)

[kthomp19]

Todays WSJ (I added bold):

The very words of the AT1 contract say that they can be wiped out while lower priority claims (such as equity shareholders) remain. The exact quote:

The Write-down may occur even if existing preference shares, participation certificates and ordinary shares of CSG remain outstanding.

The political decision was not to subvert the capital stack. It was to invoke the write down clause that wiped the AT1 bonds.

An appropriate quote from John Hempton's article:

If you think the Swiss Government stepped in to muck up the order of creditors and thus inflict losses on you then you are delusional.

The Swiss Government followed the order of creditors as disclosed both in the prospectus and in Credit Suisse presentations.

They did nothing wrong.

Therefore all talk about the capital stack with regards to CS is misplaced. As I have said several times already, the capital stack was respected, not violated. The AT1 bondholders' contract terms were respected, not violated.



If this CS AT1 bond thing has any read-through to FnF, it's that the junior pref shareholders' contracts and placement in the capital stack will be respected, not violated, even though FnF's resolution will be political, just as CS's was.

And if it doesn't, the CS thing doesn't matter at all and no further discussion of it with regards to FnF is appropriate.