Fannie Mae-No Politics (FNMA)

[NeoSunTzu]

Reassessing Ackman ... Ackman will turn out to be "right" on his overall FnF bets. He has been expressing optimism on resolution for some time now. To wit the narrative has shifted and it is as close to a certainty as we can get that the industry wants recap and release while the establishment powers no longer SEEM to be strongly opposed to this option; however, this obviously depends on some kind of successful capital raise and there is no set time frame that this MUST occur in the near term.

I still believe in order to get the sizeable buy in they need from new equity they will need to reduce the regulatory capital (%) requirement and change something regarding the liquidation preference, senior preferred shares, and/or the warrants. This may be an iterative process with some recursive feature where some pulse taking on initial interest may spur hints of reciprocation on the part of the government (e.g., hints of sps write down). Since FHFA's request for comments is underway regulatory cap % reduction may be the first shoe to drop. There is a lot more to be said and speculated on about this process, but it is beside the point regarding the assessment of Ackman's bets.

Ackman has disclosed his average share purchase price for commons and disclosed enough information on his jps holdings that one can ballpark his likely reward if jps are made whole and commons are "wiped out." I believe it is somewhere in the ball park of $100 million. It was smart for him to drop his litigation (costs) and retain his common shares for cake icing on the chance something is negotiated to leave common share value while any loss will make a nice writeoff on his overall porfolio gains - nice tax savings. Since neither is a significant portion of his overall portfolio I'm sure he is sleeping like a baby at night and doesn't need Bradford's advice.