Fannie Mae-No Politics (FNMA)

[kthomp19]

Better option is to void the SPS except for the original $ 2 bn

Better for whom?

Treasury? No. Legacy common? Yes.

I'll give you one guess as to which of those two actually holds any power here. That should in turn tell you which scenario (senior pref writedown or conversion to common) is more likely to happen.

All other parties (FHFA, junior pref holders, outside investors) are indifferent when it comes to those two scenarios.

that will fix the hole also - wouldn't it?

Yes, this would fix the three regulatory capital holes just like converting the seniors to commons would.



There is a hybrid option, too. Right now $193B of Treasury's senior pref liquidation preference resides on the balance sheets of FnF, but another $100B is off balance sheet. Treasury could write the $193B down to $2B while converting the other $100B to common; with common prices as low as they are there actually isn't much difference between converting $100B of the liquidation preference or the full $291B.