Replies to post #637289 on Fannie Mae-No Politics (FNMA)

[Brooge warrants cancelled]

I hope your bet on pref and gnw payoff. Frontier hurt a lot.

[kthomp19]

They sure can! But it won't help CET-1 which is the mandatory requirement that needs to be met in order for the GSEs to be released.

Wouldn't it be silly to sell Jr. Preferreds that don't help recapitalize the GSEs?

Also, the gap between Calabria's CET1 and Tier 1 capital standards was only $25B (based on the book of business as of September 30 2019). The only material difference between those two standards is that Tier 1 includes non-cumulative prefs while CET1 doesn't.

The upshot is that Calabria only sees $25B worth of room in FnF's capital structure for non-cumulative prefs. The juniors are already $33B, so for Calabria to authorize FnF issuing new non-cumulative prefs, the juniors would have to be either redeemed for cash at 100% of par or offered a generous enough conversion to common to get them to accept. Win/win from my perspective.

It also means they would have to start paying Dividends immediately on all of the Jr. Preferreds, further depleting much needed capital from the GSEs

Good point. Calabria's use of the term "private capital" clearly points to an equity raise (as opposed to only retained earnings) being a prerequisite for release, and it will be difficult, if not impossible, to sell new common shares that don't get immediate dividends. Immediate common dividends mean immediate full dividends on the juniors per the terms of their contracts.