Replies to post #671404 on Fannie Mae-No Politics (FNMA)

[altruism]

Absolutely correct I ran numbers about a year ago and came up with$1.25... Careful folks here laugh in the face of reality

[chessmaster315]

Ok, here is the flaw in your thinking:

You assume investors, with money, are dumber than chickens.

Chickens wait in a long line while fellow chickens are butchered. They either dont hear their screams are dont do anything about it.

Investors, however, hear our (shareholder screams) being butchered, and they go to a different line.

Bottom line: Money can not be raised by new investors until old investors are made whole and dont scream.

There wont be a dilution of whatever to one "on the backs" of old common shareholders. We are not gonna stand there in a line and not tell others.

Are you sure you want to be in this line (to buy FNMA commons new issue)? We got butchered doing that, and you are next. Until our government "can no longer rob" from shareholders there will be few or no takers to new investments. Remember, this would be the largest NEW IPO ever, because hundreds of billions need to be raised.

There are no "new investors" getting in a line to lose their money getting butchered like us. Make us whole, first, then get new investors. Its simple.

[Louie_Louie]

So you think that makes sense, Eh? The first thing a slew of new investors with deep pockets will want to invest in is a company that killed all its last shareholders? AND, and, aaaaand your money invested will be first in line to disapear at the first sign of economic trouble. Lol

What would a company need to offer this slew of investors to jump off that cliff like that?

Naaaaa,,they are better off making current investors whole, thereby strengthening the stocks price, equity, the companies reputation so they can attract even more investors to buy those warrants which were stolen, since giving up those warrants is the legal way to peace with the company, shareholders and the market. Anything else leaves a very obvious crap stain in their underwear for all to see.

[imtheshadow]

yes, maybe a dilution factor of 34 IF all capital raised externally at 4, but far less if at higher pps and/or retained earnings used ... correct?

[JJBBYD]

Sounds like the dilution solution everyone knows is coming except the bagholders on this board

[kthomp19]

3% cap level means $180 billion equity. FnF currently have $45 billion, so $135 billion are missing to reach the required cap level.

It's worse than that. The 3% exit threshold is based on CET1 capital, which excludes the juniors, AOCI, and deferred tax assets.

Without the seniors, Fannie's CET1 capital was negative $6.934B at the end of 2020.
Without the seniors, Freddie's CET1 capital was negative $4.896B at the end of 2020.

(With the seniors those numbers are negative $127.770B and negative $77.544B respectively)

That means the shortfall isn't $135B, it's $192B ($180B threshold minus negative $12B of current CET1 capital). That does go down with retained earnings, but it would take 3 years to get down to the $135B you calculated and 10 years to disappear entirely. And that's only if Treasury agrees to cancel the seniors or convert them to commons; as things stand the seniors drag down CET1 capital by an additional $193B.

The missing capital must come from outside investors (capital raise), because converting the old commons (OTC) into new commons (regular) wouldn't bring a single Cent.

Correct. Converting the juniors to commons, on the other hand, does increase CET1 capital so it is a viable way to help close the gap. Not doing a conversion both guarantees dividends to the juniors and makes the capital raise $33B bigger; common shareholders who argue against a conversion rarely take this into account.

This would result in dilution by roughly factor 34 (= 135 / 4).

My calculations don't work that way, but I see where you got your numbers.

One way to estimate the post-raise common ownership by each group (new investors, converted juniors, existing commons, warrants, converted seniors) is to look at how much of the required capital each group contributes. Retained earnings and CET1 capital already on the books are attributable to the last three, capital contributed by the equity raise is attributable to the first one, and the juniors are worth $33B of CET1 capital once converted.

On this basis, the juniors will need to be offered at least 18% ($33B / $180B) to accept a conversion. If FnF achieve a $250B market cap later, that stake will be worth $45.8B, or around 138% of par.

$2.35 billion is 60% of current market cap. So it's like old commons dropping from now 2$ to $1.20$.

If warrants are NOT executed, it is like old commons advancing from 2$ to 6$.

If Treasury doesn't exercise the warrants, that's terrible news for the existing commons because it would mean Treasury either converts the seniors (crushing the existing commons to near-nothing) or sees the warrants as having so little value that they aren't worth exercising (two of the CBO's scenarios in this paper from last August value the warrants at $0.1B).