Replies to post #540473 on Fannie Mae-No Politics (FNMA)

[Patswil]

This post should be stickied

[kthomp19]

If NWS is rules illegal then all past NWS is illegal and must be reversed through a simple accounting change.

The plaintiffs asked for one of two remedies, preferring the first:

1) NWS over, seniors extinguished, FnF get a $20B credit with Treasury towards future income tax payments or commitment fees. No cash changes hands.
2) NWS over, FnF get back all money paid beyond the 10% dividend payments (around $122B), seniors remain fully intact ($193B liquidation preference, rights to 10% cash dividends).

Note the last part of the first one: no cash changes hands. That means it doesn't help towards a recap.

The second one instantly recaps FnF, but Treasury's seniors remain in place. Nobody will buy shares (either common or pref) while those exist because they eat up all feasible future liquidation preference and almost all of earnings. The most likely course of action is Treasury converting the seniors to commons, which would crush the existing ones into oblivion.

That goes right back into recapping the GSEs.

Nope. See above.

Also, even if the Fifth Circuit orders Treasury to pay any money to FnF, that would be stayed while Treasury appeals the ruling to SCOTUS. In the meantime FHFA and Treasury could end the NWS by agreement and get the plaintiffs to drop the lawsuits, making the Fifth Circuit's ruling moot.

The idea that "en banc win = instant recap" is only true if the seniors stick around, and that's really bad for the commons due to the inevitable conversion.