Replies to post #631784 on Fannie Mae-No Politics (FNMA)

[camaro4me]

Let's wait and see what's in the capital plan.

I have to admit, I'm in the "or not" camp. I know this has been discussed ad nauseum on this Discussion Board, so feel free to ignore my thoughts.

I still fail to see why FnF would want to convert the JPS as the first item of business. I understand that an eventual conversion needs to be laid out in their capital plan, but they may choose to delay the execution of that until the end of 2021. That way they can maximize the value of a much higher share price (Just like TSLA did recently when their share price was soaring through the stratosphere). As long as they fully disclose their plan for eventually converting the JPS, it should be easy for new investors to buy into it. It should not be a problem to delay that conversion/buyout. To convert earlier than that would be overpaying for that capital, which makes no sense. If this Capital Plan is going to take multiple years (4-5 years?) to carry out anyway, why would you be in a rush to convert the JPS. I am with Whitney Tilson when it comes to my perspective on how they deal with JPS.

There are those on the BOD who are owners of common. I'm not aware that any are owners of JPS. So while they will do what is necessary with JPS to meet capital requirements, they are unlikely to do it sooner than necessary, because they have a personal interest as well as a fiduciary responsibility to the commons.

[Guido2]

Thanks for bringing more common sense to the board.

So far, none of the plaintiffs has asked for a conversion. With the direct claims being shot down one by one, the derivative claims are pretty much the only ones at the bargaining table. Why would they want the value of their investments diluted?

[kthomp19]

I still fail to see why FnF would want to convert the JPS as the first item of business. I understand that an eventual conversion needs to be laid out in their capital plan, but they may choose to delay the execution of that until the end of 2021. That way they can maximize the value of a much higher share price (Just like TSLA did recently when their share price was soaring through the stratosphere).

What purpose is served by the delay? The only one I can see is more money for current common shareholders, whom nobody in power cares about or has a fiduciary duty to.

As long as they fully disclose their plan for eventually converting the JPS, it should be easy for new investors to buy into it. It should not be a problem to delay that conversion/buyout.

They would have to fully disclose the conversion prices and ratios or else the new investors won't buy new common shares at all. And at that point there is no point in waiting.

To convert earlier than that would be overpaying for that capital, which makes no sense.

What do you mean by this? A conversion doesn't involve anyone paying for anything.

If this Capital Plan is going to take multiple years (4-5 years?) to carry out anyway, why would you be in a rush to convert the JPS.

To get them to accept. There is no point in offering a bad deal, which includes an unnecessary delay.

Treasury's warrants also factor into this. Doing the conversion earlier helps FnF meet their CET1 capital requirements faster and gives new investors certainty over the final share count. Delaying with a set ratio and price serves no purpose, and delaying with no set ratio or price makes the re-IPO impossible.

There are those on the BOD who are owners of common. I'm not aware that any are owners of JPS. So while they will do what is necessary with JPS to meet capital requirements, they are unlikely to do it sooner than necessary, because they have a personal interest as well as a fiduciary responsibility to the commons.

The last part is false. While in conservatorship, FnF's boards have no fiduciary duty to any shareholders at all, either common or pref. It's even on page 1 in Fannie's 2019 10-K:

Our directors do not have any fiduciary duties to any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator.

Shareholders are holders of Fannie equity securities, by the way.

Since the first equity raise will happen while conservatorship is still in place (see Calabria's quote "It has always been my view that an exit from conservatorship is going to require a large capital raise by Fannie and Freddie. I have always believed that that's a 2021, 2022 event."), fiduciary duties to existing shareholders will not factor into it.