Fannie Mae-No Politics (FNMA)

[kthomp19]

1. The UST will take ALL the equity value of the GSEs except for something less than $0.10 of legacy common:
2, A new DJT Admin would be fine with this
3. The SEC will stop trading to execute it and will not let the GSE Common trade again until after the market value of legacy common is less than $0.10 per share
4. This is how free markets and capitalism is intended to work
5. There will be no meaningful litigation regarding these UST and SEC actions.

1) Treasury certainly can do this.
2) Of course. His own letter said his Treasury Department would have "sold the government's common stock in these companies at a huge profit", and Treasury makes more profit from selling common shares by converting the seniors compared to writing the seniors down and exercising the warrants.
3) I'm not so sure about this, but if a senior-to-common conversion does happen the common price will quickly and violently re-rate anyway.
4) I don't see how this is relevant. It's an opinion anyway.
5) Correct. The January 2021 letter agreement says that FnF cannot be released unless all litigation outstanding can only result in a combined liability of less than $5B to FHFA, UST, and the companies, and also that FnF cannot issue any new stock (pursuant to Paragraph 4(a) at the top of page 5) unless Treasury exercises the warrants in full. Those two things combined mean Treasury doesn't think they face more than $5B of liability by exercising the warrants, and a senior-to-common conversion gives Treasury at most 1.2 times as many shares as exercising the warrants (99.9% / 79.9% = 1.2), meaning they don't see their liability in a senior-to-common scenario as exceeding $6B. That's around $3.33 per share at an absolute maximum, and far less than the profit Treasury would realize.