Replies to post #723823 on Fannie Mae-No Politics (FNMA)

[bradford86]

im saying that if they equitize the spspa commons are worth $0.05 or whatever.. if they want to maximize their dilution.

that said, they can basically dilute as much as they want.. so if --- to your point, they don't want to kill the commons down to $0.05 they can configure a setup where they strike a deal where they end up diluting commons to lock in the current price as to not impair them further --- in this case maybe 50 cents, --- or maybe to help raise capital they give commons 10-20% upside there to like 70 cents. who knows.

that's spspa conversion.

if spspa is written down instead of converted -- common valuations for me range $3-8 ---

i personally don't care. i don't own any, price would have to go down significantly for me to gamble on them.

[kthomp19]

The logic doesn’t hold up ..you can say they’re gonna dilute commons with spspa to the ground but your gonna still need buyers obviously no one buys for a total loss…

It does hold up. Diluting existing common shareholders won't get more than a shrug from new investors no matter how heavy that dilution is.

In fact, new investors will want to dilute pre-raise commons (Treasury included) as much as possible. Anything less is just them leaving money on the table.

something else needs to happen with seniors

The existence of a CET1 capital requirement in Thompson's rule means that converting the seniors to anything other than commons doesn't work. It will have to be conversion to common or writedown, or perhaps some of both.

I've suggested converting the seniors to zero-div non-cumulative prefs that convert to common upon sale, to avoid pushdown accounting and majority shareholder problems, but that's still a conversion to common in the end.