Fannie Mae-No Politics (FNMA)

[FOFreddie]

Great points Nats - it is not clear to me if the approximately $ 30 bn "Capital Raise" is for Fannie and Freddie or the US Treasury ( which could probably use the money RIGHT NOW). Does anyone have a public statement by Bessent or Pulte on this point - what will happen to the $ 30 bn?

Assuming the UST sells 5% via a partial exercise of warrants and assuming the best case for common that it does not convert any of the SPS for more equity - the UST will still have warrants for 75% of the fully diluted shares. Once the share offering is complete - all common shares will receive dividends - so assuming a float of 25% - the UST would receive no dividends unless it negotiates some type of PIK dividends and ALL common shareholders and JPS will start receiving dividends.

Based on Bessent's comments the UST stake is worth at least $ 500 bn implying an overall valuation of $ 625 bn. Assuming a 4% dividend yield and a 25% float - $625bn X .25 X .04 = total common dividends would be $ 6.25 bn and JPS Divs would be in the $ 1.5 to $ 2 bn. All together $ 8.25 bn with approx $ 25 bn in earnings. This type of dividend payout seems very realistic and would support a $ 625 bn valuation - even if 5% dividend you are only looking at $ 10 bn being distributed.

These are powerful numbers - assuming 10 bn shares pro-forma - but only 2.5 bn shares ( right now less than 3 bn) - this would be $ 2.5 annual dividend per share with a pro forma share price of $ 62.5 per share on a hypothetical combined F2 basis and a 4% dividend yield. Conservatorship or not - a big dividend will make it very attractive and if Pulte is right the dividends could double in 3 to 5 years.

What is not clear is how the ERCF CET1 payout restrictions apply - is it at the enterprise level or based on fully diluted shares. It could be that because the UST will not receive dividends on the shares related to the warrants the ERCF CET1 payout restrictions will not be an issue because only $ 10 bn of $ 25 bn of total earnings are being paid out. This scenario works well for FNMA but FMCC may need more capital still. In this scenario approx $ 15 bn of retained earnings would still build regulatory capital and potentially the UST could receive PIK dividends in exchange which would be done at increasingly higher prices of stock.

Bottom line is that IMHO - pure speculation - IT IS ALL ABOUT THE DIVIDENDS PER SHARE!!