Replies to post #436659 on Fannie Mae-No Politics (FNMA)

[kthomp19]

Please read under scenario - "without revoking NWS retroactively".

I ignored that scenario on purpose: if the NWS isn't revoked and the senior preferreds still remain outstanding, neither the common nor junior preferred have any value at all. The lawsuits will not be settled unless the NWS is revoked retroactively as you say.

Under scenario "with revoking NWS retroactively", it is all very simple and without raising a penny from markets. Basically it restores FnF to reformed but with original shareholder capital structure. You do not need Moelis plan for this.

Once the NWS is revoked retroactively FnF will still be extremely undercapitalized. The way I understand it, if the senior preferreds are extinguished, the $117,149M on Fannie's balance sheet will disappear, and the accumulated deficit will rise from ($126,625M) to ($9,476M). The same for Freddie, with the accumulated deficit rising from ($78,902M) to ($5,756M).

This still leaves accumulated deficits on the balance sheets which would need to go well into positive territory to consider the companies "safe" (fully recapitalized). This is the crux of my disagreement with you: you think that extinguishing the senior preferreds alone (which would be the effect of retroactively revoking the NWS) would be enough to release the companies, while me (and Moelis, and others) believe that a large capital infusion would still be necessary afterwards. That's the point of the equity raises in Moelis. The warrant exercise is an incentive for the government to play ball rather than just keep taking the golden eggs as they have been.

You do not seem understand how big institutional investors invest. This big money can only come from big institutional investors. They owe fiduciary duties to their investors. The main things that guide investment are trust, respect for rule of law, political risks, and history.

Irrelevant in my view. The $50-60B that would come in with the equity raises is a drop in the bucket compared to the amount of money out there sitting on the sidelines.

In 2007-2008 investors were duped to the extent of $20B with official assurances that FnF were safe and sound then imposing conservatorship and confiscating that $20B plus all the capital with NWS. In case of Moelis plan who will assure that same thing will not happen and how can you trust it.

Moelis is hardly alone here. How does your plan assure anyone that the same will not happen again?

All we can rely on here is that the administration that is currently in power is not the same as the one that imposed the conservatorship and NWS in the first place.

What about respect for rule of law and political risks?

Can any one predict what will happen during next housing down turn?

Those risks will just affect the share price and how many shares are issued. In my opinion they are not nearly enough to dry the demand up completely. Hell, I expect Buffett himself to be a large investor once the smoke clears. After all, god ain't makin' any more real estate. The Saudi Aramco IPO will be oversubscribed and I would consider Saudi Arabia's political risk to far exceed that of the US.