Fannie Mae-No Politics (FNMA)

[kthomp19]

The SPS aren't part of regulatory capital, per FnF SEC filings. Converting the SPS to Commons adds the conversion $ amount to CET1 capital.

Correct on both counts. As usual.

This has to do with the ERCF, not balance sheet. You don't get the same benefit by making the SPS "disappear", which is never going to happen.

From what I understand, a senior pref writedown would be accounted for by reducing the senior pref line in the balance sheet to zero and adding that amount to retained earnings. Since retained earnings do count towards all forms of regulatory capital, that writedown really would increase CET1/Tier 1/core capital by $193B.

I do think this is a viable path forward because it would allow FnF's retained earnings account to accurately reflect the reality of the company's health, rather than having a huge negative number for retained earnings (accumulated deficit) and a huge positive number for common stock.

Of course, all Treasury has to do is write down the seniors that are on the balance sheet and convert the off balance sheet LP into just as many commons as if they had converted the whole lot. There is no reason for FHFA to say no to this arrangement, and nobody else would have any say.