Fannie Mae-No Politics (FNMA)

[kthomp19]

It's actually not an equity restructuring.

Unless you're willing to wait 15+ years from now, an equity restructuring is required for FnF to exit conservatorship.

Page 7 of the January 2021 letter agreement says that FnF cannot exit conservatorship until they each have CET1 capital equal to 3% of adjusted total assets.

Page 52 of Fannie Mae's 2023 Q3 10-Q form says that its CET1 capital is -$78B (yes, that's a negative number) and that adjusted total assets are $4.560T. 3% of that is $136.8B, meaning that they are $214.8B short of exiting conservatorship.

Page 40 of Freddie Mac's 2023 Q3 10-Q form says that its CET1 capital is -$28B and that adjusted total assets are $3.758T. 3% of that is $112.7B, meaning that they are $140.7B short of exiting conservatorship.

The only way FnF will ever hit their regulatory capital requirements is either:

1) They retain earnings until the gap is filled. This will take until 2040 or so because their asset base will rise over time.
2) The $193B worth of senior preferred stock on the balance sheet ($121B Fannie, $72B Freddie) goes away and they conduct a massive capital raise.

The second option requires an equity restructuring. That means the senior preferred shares either being exchanged for common shares, written off, or some combination of those two. The exchange must be for common shares due to the definition of CET1 capital.