Fannie Mae-No Politics (FNMA)

[kthomp19]

Kthomp - what is your estimate of value at 5% legacy common and 10% legacy common ownership for FNMA? How about FMCC?

I think Fannie's market cap at the time of Treasury resolving its stake (via senior pref conversion or warrant exercise) will be around $136-204B, which reflects $17B in earnings times a P/E of 8-12. 5% of that would be $6.8-10.2B, divided by 1.158B shares gives a share price range of $5.87-8.81. For 10% ownership, double that to 11.74-17.62.

That $5.87-8.81 range lines up pretty closely with what I have expected the endgame for the legacy common to be for a while.

Note that Ackman's presentation, with a share price target of around $31, assumes legacy common ownership of 18% of the companies.

Looking at Ackman as best case near term - what is the realistic worse case scenario? I am still thinking that John Paulson said 90 -95% UST ownership early on.

"Realistic" is a matter of opinion. I think a senior pref conversion is highly realistic, whereas Ackman downplayed the possibility with vague threats and platitudes.

Page 98 of Ackman's own presentation shows a legacy common value of zero if the seniors are converted to common. Treasury ends up with 92-96% of the common and outside investors get the rest; the junior prefs are not converted in these scenarios.