Fannie Mae-No Politics (FNMA)

[kthomp19]

You have really strayed down the wrong path here, hate to tell you.

The argument that the jury-mandated payment of around $800M ($612M jury award plus pre-judgment interest on the Fannie juniors) is a capital distribution is false.

The term "capital distribution" occurs five times in HERA, but as a result of this first one the rest are moot.

1) 12 USC 4502(5)

(5) Capital distribution
(A) In general
The term “capital distribution” means—
(i) any dividend or other distribution in cash or in kind made with respect to any shares of, or other ownership interest in, an enterprise, except a dividend consisting only of shares of the enterprise;
(ii) any payment made by an enterprise to repurchase, redeem, retire, or otherwise acquire any of its shares, including any extension of credit made to finance an acquisition by the enterprise of such shares; and
(iii) any transaction that the Director determines by regulation to be, in substance, the distribution of capital.

This is HERA's definition of "capital distribution". Note that FnF making a payment to shareholders as a result of the jury verdict does not fit any of these three definitions and thus is not a capital distribution at all.

It is not a dividend, it is not a payment to acquire shares, and it is not a transaction (a transaction would involve FnF getting something in return for their money, which they won't with respect to the jury-mandated payment).

Here are the others:

2) 12 USC 4615 (a)(3):

(3) Restriction on capital distributions

A regulated entity that is classified as undercapitalized may not make any capital distribution that would result in the regulated entity being reclassified as significantly undercapitalized or critically undercapitalized.

3) 12 USC 4614(e)(1)

(e) Restriction on capital distributions
(1) In general

A regulated entity shall make no capital distribution if, after making the distribution, the regulated entity would be undercapitalized.

4) 12 USC 4616(a)(2)

(2) Restrictions on capital distributions
(A) Prior approval

A regulated entity that is classified as significantly undercapitalized may not make any capital distribution that would result in the regulated entity being reclassified as critically undercapitalized. A regulated entity that is classified as significantly undercapitalized may not make any other capital distribution unless the Director approves the distribution.
(B) Standard for approval

The Director may approve a capital distribution by a regulated entity classified as significantly undercapitalized only if the Director determines that the distribution (i) will enhance the ability of the regulated entity to meet the risk-based capital level and the minimum capital level for the regulated entity promptly, (ii) will contribute to the long-term financial safety and soundness of the regulated entity, or (iii) is otherwise in the public interest.

Notwithstanding the fact that FnF's payment due to the jury verdict is not a capital distribution as defined by HERA, these three do not apply anyway because FHFA has never given FnF one of HERA's capital classifications (adequately capitalized, undercapitalized, significantly undercapitalized, critically undercapitalized) during conservatorship.

5) 12 USC 4514(b)

(b) Capital distributions

The Director may require a regulated entity to submit a report to the Director after the declaration of any capital distribution by the regulated entity and before making the capital distribution. The report shall be made in such form and under such circumstances and shall contain such information as the Director shall require.

I only mention this one for the sake of completeness. It is also irrelevant with respect to the jury's verdict.



As a result, every argument that followed from the false premise (that FnF's jury-mandated payment is a disallowed capital distribution) is also false.