Replies to post #653520 on Fannie Mae-No Politics (FNMA)

[GAK-]

Converting the JPS to Commons will increase the capital by about $32B

By "increase the capital," I assume you mean they take some of the cash they have in the bank and reallocate it from Tier 1 to CET 1. So it does not actually increase their cash, but simply changes the way they designate it. So for FNMA, they go from $21.4B in CET1 to roughly $40B in CET1, correct?

[trunkmonk]

Nope they are a liability and not equity, both are already capitol. conversion would make them both equity.

[Guido2]

It has also been explained here numerous times that jps are capital. Just not COMMON EQUITY CAPITAL TIER 1 (CET1). Conversion doesn't add to the total capital. If needed, it is better to raise capital in the open market. Based on their current book of business and earnings track record, they should be expected to earn $30 billion annually for the foreseeable future.

When Q4 2020 results are out, the two should have a minimum capital of $40 billion. In four years of retained earnings without a secondary offering, CET1 should stand at $160 billion. In the interim, if they do have a secondary offering of 1 billion shares at $100 each, the CET1 goes to $260 billion. Add $33 billion of jps. Total capital is now $293 billion.

I have purposely left out the overpayments. They would more than cover the commitment fees many times over during the interim period.