Replies to post #436669 on Fannie Mae-No Politics (FNMA)

[kthomp19]

Currently FnF have zero capital and owe SPS $187.5B to tsy under NWS.
So there is corresponding asset of $187.5B balancing this liability.

The entries for senior preferred stock (positive) and accumulated deficit (negative) both appear in the shareholder equity part of the balance sheet, not the assets or liabilities sections.

If NWS is canceled retroactively, the terms of original SPSPA will be applicable. FnF have paid back $187.5B plus 10% interest as per original SPSPA. So $187.7 liability should be reduced to 0 and shareholder's funds needs to be increased by $187.5B.

These shareholder's funds of $187.5B are the core capital.

I believe your line of reasoning is wrong here. On the balance sheet the senior preferred stock is actually a positive number, so cancelling the shares actually reduces shareholder equity. The offset is to reduce the accumulated deficits by the same amount. Therefore once the NWS is retroactively revoked and the senior preferreds cancelled, the companies will have exactly the same capital they have now. Getting them to a "safe" condition (whatever number that may be, let's call it $100B) would require a capital raise of that amount.

Put a different way: right now the companies have zero capital and "owe" $187.5B. Cancelling the senior preferreds means they would have zero capital and not "owe" anything. It doesn't suddenly cause $187.5B to appear in their bank accounts.