Replies to post #676633 on Fannie Mae-No Politics (FNMA)

[kthomp19]

after the 3,960,490 liabilities, the 120,836 liabilities are added

The SPS are not liabilities, they are equity. Deleting them from the balance sheet with no corresponding second entry, if that were possible, would reduce shareholder equity by $193B.

Treasury writing them off, converting them to commons, or some combination of both would have zero net effect on total shareholder equity on the balance sheet; the $193B would just move to retained earnings and/or additional paid-in capital.

It would add $193B to all relevant capital levels (core/Tier 1/CET1), but those are so hugely negative right now that much more would still have to be raised in the capital markets.

we know CET1 in Q1 should have been $140

False. With the SPS in place, FnF's combined CET1 capital at the end of Q1 was negative $197.392B. This is a fact, not an opinion.

With the seniors gone it would have been negative $3.908B. So you're only off by $144B or so.

This really isn't that difficult, though by now I shouldn't be surprised that I have to hold someone's hand and walk them through this. CET1 capital is book shareholder equity minus several things: SPS, JPS, AOCI, and DTAs.

At the end of Q1 2020, Fannie's numbers were:
Total book equity: $30.225B
AOCI: $0.089B
JPS: $13.190B
SPS: $120.836B
DTA: $12.516B
CET1 capital: -$122.346B
CET1 capital without the seniors: -$1.510B

All of these are facts and can be seen on page 6 of the Q1 earnings press release.



Freddie's numbers are similar: hugely negative CET1 with the SPS in place (-$75.046B) and slightly negative with the SPS cancelled/converted (-$2.398B).