Replies to post #676579 on Fannie Mae (FNMA)

[Bostonsesco]

Without a ruling we’re basically recapitalizing our self in four years if they make 20 billion each a year. After that it’ll be like who needs a conservator their loaded.

[chessmaster315]

None of this makes sense:


1. Let's start with a defination of Cet1 Capital. It has nothing to do with what you posted.
Instead, this is Cet1 capital:

https://corporatefinanceinstitute.com/resources/knowledge/finance/common-equity-tier-1-cet1/#:~:text=Common%20Equity%20Tier%201%20(CET1)%20capital%20includes%20the%20core%20capital,ability%20to%20withstand%20financial%20distress.

In short:

Summary
Common Equity Tier 1 (CET1) capital includes the core capital that a bank holds in its capital structure.
CET1 ratio compares a bank’s capital against its risk-weighted assets to determine its ability to withstand financial distress.
The core capital of a bank includes equity capital and disclosed reserves such as retained earnings.

2. The overpayment is disputed. When you "take" money that does not belong to you and refuse to return it for over a decade, interest is indicated. Remember, we were required to pay 10 percent.

3. Where do you get this? There is no "conversion to commons" on the table or at Scotus, so this has to be made up: PFA (plucked from air).

4. Because your first 3 statements are pretty much "PFA" (plucked from air), your conclusion, is also non sequitir.

[Wise Man]

How can you say:

FnF's combined CET1 capital right now is around -$4M.

when the Core Capital posted in their earnings reports was -$96 billion as of end of 2020 for Fannie Mae and -$54 billion as of March 31, 2021 in the case of Freddie Mac.
So, around -$150 billion combined.
- means negative.

The Core Capital includes the JPS valued at par value, so the CET1 that excludes the JPS is $33 billion lower than the Core Capital.
So, currently their CET1 is around -$183 billion.

[chessmaster315]

Your arguements are non sequitir, mostly.

First, your conclusion does not follow, and you make "unjustified" assumptions, for example:

3) Converting the juniors to commons adds $33B to CET1 capital, not $35B.

Did you miss that assumption? The "assumption" is that "juniors will be converted to commons".

Its an assumption primarily based on your own Preferred bias, not on any real indications that our government will "convert JPS to commons" to raise capital.

Its not clear that converting JPS to commons "would" raise capital, but instead take money out of your front pocket and place it in the back pocket.

But, to buy preferreds, you must "hope" there will be a favorable conversion, where preferreds are given a bucket of cash at common shareholders expense, that is, a "favorable conversion", not aa "conversion". If you wish to convert your preferreds to commons, you can do so now: Just sell your prefereds and buy commons. Simple. But, the "preferred conversion hypothesis" always assumes preferreds will get some sort of multiple conversion rate above market. There is no justification for this...

By rendering an "invalid asssumption", you make your conclusion non sequitir.

Its like making statemtents like:
1. The sun rises at about 7 AM tommorrow.
2. Banks pay a very low interest on savings accounts.
3. Since my lottery winnings could be converted to an annuity earning 300,000 per month, if the sun rises tommorrow on time, I will earn 300,000 per month.
Its non sequitir.

[HappyAlways]

Your analysis is vastly incorrect.

1. The 79.9% free warrants will not be allowed to exercise. They are there as collaterals in case of bankruptcy. If NWS is voided, there will be no more PSPA loan and no bankruptcy. With reference to all other bailouts, the best deal USG can get is to sell back the free warrants to the GSEs (at $210M in AIG bailout case).
2. If the GSEs are up-listed in NYSE, stock price will surge to $10~$15 immediately. Any dilution/conversion/secondary-IPO will be based on the market price.
3. Fannie makes $10 per share and is in some unique business. We can expect the PE to be at 15~20 in the long run.
4. FHFA will need to review the CET1 again. 3% is way too high, given the excessive cost will be reimbursed thru the mortgage interest rate. And, it will impact on any new players to the secondary mortgage market.