Fannie Mae-No Politics (FNMA)

[mike_usa]

Comment by gentlesword in Seeking Alpha article:


You forgot something big:


If Fannie Mae is back in the hands of private investors, it will be deemed too big to fail. 3.3 trillion asset is more than 150% of the JPM or BAC. The equity portion on its balance sheet is only $9 billion, 0.3% of the total asset or a leverage of 330, which is 10 times of the equivalent to those of all big banks back in pre-subprime crisis. That is the principal reason why the EPS is so high.


Assuming the dream comes true, it still either has to raise private equity to the level similar to the big 4 banks according to the current legal environment, or has to spin off only super minority (say less than 10%) of the asset to the hands of private investors plus still needing to raise some equity, leaving the super majority of the asset for the government to wind down. Either way, the real EPS will be hugely diluted.


Do not get me wrong. I am holding both common and preferred shares and intend to bet all the way down to see the final hands. But I am just feeling any price valuation of more than $20 for the common share is a wishful thinking.