Replies to post #370632 on Fannie Mae-No Politics (FNMA)

[RickNagra]

I am a bit confused by this article. Is the author saying that Commons upside potential is $25 and Preferreds is $50 ?

FnF don't need to raise capital just to remove the TCCA fees and the net worth sweep to Treasury in order to allow them to build capital allocating funds to a retained earnings account.

If we assume that the government's warrant representing 79.9% of the common equity will be cancelled because it has already been paid back, the common stocks have more upside than the junior preferred shares for the very reason that the junior preferred shares have a cap in their upside - their face value ($25 and $50 respectively).

[tcj]

This guy's article is like so many of the boards with people claiming $100, $200, etc pps. I wish he was right as I hold common and prf'd, but I don't think so. Hope vs probability, I'll take probability.

The P's and Mnuchin are going to hammer out a settlement and the P's including Ackman are not going to care if the warrants get exercised so long as the pps works for their investment. The gov has every interest in structuring a deal to get rid of the litigants with deep pockets and at the same time maximize the value of their warrants. The result is that shareholders make a lot of money and the gov (sold as the taxpayer) makes a ton of money. It's a win-win scenario that will end the majority of lawsuits. Prfd's get par and/or hopefully a nice incentive to convert to common while gov. can raise their strike price on warrants, offer a line of credit to offset the need for an immediate recap, etc. Probability is the key to investing IMHO and thinking that guys like Mnuchin are going to leave a ton of money on the table because it's the right thing to do is foolish. Win - win works and if there's a few small litigants that want to try and play it out for the next 5 years, no one really cares at that point. Is this right and do I agree with it, No, but it's the probable scenario.