Replies to post #436630 on Fannie Mae-No Politics (FNMA)

[TheDon3]

Nobodys answered the question of who's going to buy 50-60 Billion dollars worth of a diluted common stock? Especially considering all that the previous investors had gone through. Where is the demand going to come from?

[bcde]

"1. accounting embezzlement to justify conversion of Jr-pref in commons while FnF are currently well capitalized except for the burden of NWS. There are no viable exit-plans without revoking NWS retroactively.

What does that bold part mean? "

Accounting embezzlement would be similar to what FHFA conservatorship did to impose SPSPA. At the time of conservatorship FnF had $95B capital, positive cash flows, and 100s of billions of AAA assets. FnF did not need any capital but it was imposed to bankrupt them.

Scenario with revoking NWS retroactively
If NWS is revoked retroactively then FnF do not need any more fresh capital and it is the only possible way to end Conservatorship. In addition FnF should be able to buy back warrants on the same basis as other banks.

Scenario Without revoking NWS retroactively
In this scenario it is impossible to capitalize FnF and end conservatorship. Some of the below numbers can not estimated accurately but will give some idea about the plan.

FnF would need to raise about $387.5B ($187.5B to redeem SPS and $200B for core capital). Raising $387.5B would add 30B common shares at pps of $13.

In addition if warrants (80% of commons) and Jr.Pref ($35B) are converted to commons then existing common shareholders will be almost wiped out (<4%) depending on conversion price.

There will be almost 45B to 50B common shares after conversion.

Then Gov is expected to raise $100B from selling its holding of 8B of FnF common shares. That is total of 487.5B to be raised from markets. With this, Gov would get back total of $575B on a investment of $140B.

This is about $600B to $700B mkt capitalization at a price of $13.

Which investor will invest in such a crazy plan?

"Junior pref holders (as opposed to common holders) are the ones who are paying for the lawsuits that are the government's main reason to pay any attention to shareholder rights at all."

There are both common and pref shareholder lawsuits. Any way cases are reaching SCOTUS and the chances for settlement or implementing various plans are diminishng. If pref shareholders benefit unfairly at the cost of common shareholders, then there will be more lawsuits from common shareholders.

FnF don't need hundreds of billions. $99B is enough according to FHFA's most recent stress tests. There is way more than enough money in the world's financial system to recap the companies.

And how exactly does your scenario cause a crisis? What risks and uncertainties are created that don't already exist?

Under Moelis plan, it requires $487.5B to be raised from markets.

But what legal challenges would result from implementing the Moelis plan? Moelis is designed to offer an incentive for the litigants to settle, meaning fewer legal challenges and not more. Since the plaintiffs are junior pref holders, the plan considers what is good for them first. What exactly is wrong with that?

With Moelis plan, current common shareholders will be reduced below 4%. PPS valuation of $13 is exaggerated with mkt cap of $600B to $700B.

I don't think this lack of trust will keep away enough money to make a recap impossible. It will just lower the share price; the risk of another NWS will be priced in.

Why would investors invest $487.5B fresh capital in companies managed by fraudulent FHFA conservatoship?