Replies to post #615708 on Fannie Mae-No Politics (FNMA)

[kthomp19]

But I tend to think Mnuchin and Calabria do a BIG BANG with SPSA amendment, NWS cancelled, senior pref retirement, and JPS conversion...

I also think this will happen. Add in settlement or mooting of the court cases.

Then release FMCC and FNMA under consent decree -- and let the decide when or if to do offerings over coming years

So Calabria and Mnuchin do not decide mechanics of the offerings.

Do you agree?

No I don't, for several reasons:

1) Calabria said "It has always been my view that an exit from conservatorship is going to require a large capital raise by Fannie and Freddie." While the "exit from conservatorship" part could be construed to mean the end of the consent decree, I think this strains credulity. Instead, his comment is far more likely to point to release under consent decree happening upon completion of the capital raise.
2) Releasing FnF under consent decree but with no capital raise would leave FnF with something like $40B in core capital if it's done at the end of the year: $24B now and another $16B of retained earnings. A tax credit from Treasury (the $25-30B return of overpayments along with cancellation of the seniors) will not have kicked in yet; such credits would only count to capital as they are earned, around $4B per year. Such low capital levels relative to Calabria's minimum capital standard of $152B would force Calabria to classify FnF as "significantly undercapitalized" by HERA. In turn, he would retain the ability to direct the form and amount of all capital raises, again by HERA.
3) Calabria has repeatedly talked about a sense of urgency in getting FnF recapped and released. A slow recap with several spaced-out raises does not fit with Calabria's words at all.

Boiled down: Calabria will be calling the shots for the capital raise. The companies themselves have to actually issue the shares, but since all of the preparation will happen while FnF are still in conservatorship (or classified as "significantly undercapitalized" if out of conservatorship), it will be Calabria that has final say.