Fannie Mae-No Politics (FNMA)

[kthomp19]

if they did those two things and add what's on hand at the moment where are the gse's ? balance wise

For Fannie, as of September 30 2023:

Current CET1 capital: -$78B
Senior prefs on balance sheet: $121B
Junior prefs on balance sheet: $19B

Converting both the seniors and juniors to common adds a total of $140B to CET1, bringing it to positive $62B.


For Freddie, as of September 30 2023:

Current CET1 capital: -$47B
Senior prefs on balance sheet: $72B
Junior prefs on balance sheet: $14B

Converting both the seniors and juniors to common adds a total of $86B to CET1, bringing it to positive $39B.



Right now we don't know exactly what the exit threshold is. The January 2021 letter agreement says CET1 capital equal to 3% of adjusted total assets.

For Fannie that's $137B, so even converting all preferred shares into commons leaves a shortfall of $75B.
For Fannie that's $113B, so even converting all preferred shares into commons leaves a shortfall of $74B.



But the most important capital requirement in HERA is the minimum (leverage) capital requirement, which is 2.5% of adjusted total assets. That can only be met with core capital, and while a senior-to-common conversion adds to core capital, a junior-to-common conversion doesn't.

Fannie's current core capital is -$47B. Freddie's is -$28B.

For Fannie, 2.5% of adjusted total assets is $114B, so converting the seniors into commons leaves a shortfall of $40B.
For Freddie, 2.5% of adjusted total assets is $94B, so converting the seniors into commons leaves a shortfall of $50B.