Replies to post #470689 on Fannie Mae-No Politics (FNMA)

[Beauxcoux]

Great post

[HoldenWalker99]

I have no preference except to choose the route that maximizes my gains.

Since preferred shares are capped at par value for the most part, your gains get maximized by investing in common shares. So you base all of your argument on that. Not fooling anyone.

I invest for a living. That is ALL I do.

Shocking. Most of your arguments are as solid as pudding.

Nobody in their right mind would buy any new junior preferred shares

As long as there is money to be made, investors will show up to make a profit whether previous shareholders were mistreated or not.

When it comes to Fannie Mae,there are no simple courses of action and no easy paths to recapitalization. You make a huge mistake by over-simplifying and avoiding the financial traps that RRR has in store for Mr. Mnuchin.

No one is oversimplifying anything. I'm currently focused on the junior preferred conversion and its merits and implications.

[kthomp19]

Wrong on all accords. First, I am coming at this from the perspective of an investor who has 3 options from which to choose. Buy FNMA common shares. Buy FNMA junior preferred shares. Buy neither and move onto another potential investment. I have no preference except to choose the route that maximizes my gains. I have no especial preference.

For claiming such a neutral standpoint you sure have bought into the righteous indignation of the "any dilution is government theft" crowd. That last sentence makes you sound like a "will" investor, but your previous posts indicate a "should" leaning.

That leaves FNMA in the corner of ONLY having the option to float gobs of additional common shares in order to raise capital.

Converting the juniors opens up the possibility of issuing new ones, which brings in private capital (that counts towards core capital).

How else would you have the companies recapitalize? New juniors, new commons, and retained earnings are the only way to build core capital. My argument is that retained earnings alone aren't enough to meet Mnuchin's timeline and Watt's minimum capital level (which I think will have to be reached before the companies can be released).

Nobody in their right mind would buy any new junior preferred shares in Year 3 (as envisioned by Moelis) if the former JPS were held in prison for 10 years and then discharged with no dividend ever paid as they were converted to common shares in some mandatory and authoritarian manner that may not suit the JPS purchaser's risk tolerance or expectations.

I agree. Junior pref shareholders must give their consent to any conversion (i.e. a generous ratio) or else their contracts have been truly, directly, and immediately breached. If FHFA was willing to go that far they would have done so long ago. A mandatory conversion isn't happening.

As for the past mistreatment of shareholders, that stuff already happened. If you think that prevents a recap of the company then the companies will never be recapped! I think the mistreatment is actually an argument in favor of a conversion: the old prefs cease to exist and any bad taste in people's mouths associated with them.