Wednesday, May 01, 2024 3:17:40 PM
Under the terms of the ERCF, FnF will have to meet their full regulatory capital requirements (minimum and risk-based) plus have at least 25% of the applicable buffer to pay a dividend.
Page 47 of Fannie Mae's 2024 Q1 10-Q form shows that they have a shortfall of $156B to the Adjusted Total Capital requirement of $106B. 25% of the $82B buffer adds another $21B to give the total shortfall to being able to pay dividends: $177B.
$121B of that could be made up in an instant if Treasury decides to cancel the seniors or convert them to commons, but the rest would have to be made up with some form of de-risking, retaining more earnings, or a capital raise.
Fannie's shortfall to the Tier 1 leverage capital standard is $164B. Adding in 25% of the $24B buffer brings that shortfall to $170B. Again, Treasury can wipe out $121B of that shortfall in an instant but the other $49B would have to come from some combination of retained earnings and a capital raise. Those are the only two options given the definition of Tier 1 capital used in the ERCF.
Freddie Mac's 2024 Q1 10-Q form, page 38, shows that:
1) There is a $110B deficit to the base Adjusted Total Capital requirement. Add on 25% of the $51B buffer and the total shortfall to paying dividends is $123B. $72B of that can be wiped out by Treasury but the other $51B shortfall would remain.
2) There is a $124B deficit to the base Tier 1 leverage capital requirement. Add 25% of the $11B buffer and the total shortfall to paying dividends is $127B. Once the $72B of balance sheet senior prefs are taken care of (by cancellation or conversion to common), Freddie would still have to retain and/or raise $55B more in order to start paying dividends.
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