Replies to post #747090 on Fannie Mae-No Politics (FNMA)

[stoxjock]

Awesome Post! GB doesn't have a clue of what he's talking...'Dilution' through "Trillions of New 'Common' " shares? Really? I know much much than GB because I actually worked on Wall St for an IB for 5+ years...

[FOFreddie]

Gigantic Thanks NeoSunTzu!!! - really thoughtful and with real analysis backed up by assumed facts.!! In my perspective this is what posters should bring to this Board! Really great analysis and critique of the CBO Paper.

[Brooge warrants cancelled]

sticky
please !!!!!!!!!!

[jeddiemack]

You completely support why...

The best feasible resurection of the GSE's would involve the government recognizing the repayment of the money lent to them and no warrant exercise. While they are owed more back for what was overpaid. if they stop before returning all of it (plus interest) then they can raise $350B less capital and get the companies back to the shareholders.

What they could do would be take an annual fee of say 2-3 Billion ... for some reason...

Doing this ... gets them out of gov. control without having to raise excess billions; but instead $50 or so..

[Barron4664]

Thank you Neo,

Your post illustrates and articulates the reason I and hopefully other courageous shareholders and citizens will file new claims against the Treasury. Hopefully some of the following claims will find their way into existing litigation as well.

Direct claims for takings/illegal exaction based on the prohibition of the initial commitment fee and periodic commitment fees in the form of warrants and liquidation Preference in the Charter Act. Now that US Supreme court has ruled that FHFA director is subservient to POTUS, an attempt to challenge the rulings that shareholder claims are derivative based on third party reasoning should be made based on self dealing.

Treasury’s action in creating the commitment fee was not authorized by the Charter amendments under HERA. Therefore the liquidation preference represents an unlawful appropriation, requiring constitutional claims for separation of government, major questions doctrine, and most importantly the public debt clause, section 4 of the 14th amendment. Treasury has failed to consolidate the FHFA-C and its wards onto the nations balance sheet after 15 years of nationalizing the twins. This represents an unconstitutional repudiation of the nations debt if the commitment fee in the SPSPA is allowed to stand.

For these reasons all of the actions will eventually be reversed. Until that day, the money will be used for political purposes.

[kthomp19]

While it has been sanctioned by the courts it's almost as if supporters of jps relish its standing in the belief that it ASSURES you will be made whole while commons are massively diluted. The reality of that assurance may be very different than you imagine as I'll try to exhibit below.

You appear to have things mixed up here. Glen was talking about a senior-to-common conversion, while your rebuttal is based on the CBO paper which only mentioned that conversion in passing.

In a vacuum, a senior-to-common conversion does exactly what it says in your sentence: the juniors would be money good (they would sit at the top of the equity stack and FnF's net worth greatly exceeds the juniors' total stated value) while the commons would be massively diluted (more so than the warrants, otherwise the senior-to-common conversion would be pointless).

Returning to the $425B estimated required capital for the GSE obligations noted above it is important to look at some historical IPO numbers.

Not with respect to the $425B. Fannie and Freddie will never be able to raise anywhere close to that much capital because the companies aren't worth anywhere close to that.

The CBO's assumption that a capital raise would be done to redeem the seniors at their full liquidation preference was extremely unrealistic in August 2020, and is even more so now that the liquidation preference has increased by over $50B since then.

The purpose of raising capital is to get FnF to their required regulatory capital levels; any money that goes towards redeeming the seniors doesn't go to the companies and thus doesn't raise their regulatory capital. If Treasury wants to monetize the seniors, the only real option they have - given the different types of capital requirements in the ERCF and their definitions (most notably CET1 capital) - is to convert them to commons. Basically super-warrants.

Fully addressing the insane share counts you alluded to in your previous analysis of common dilution would fill the entire space I've used already.

If the "insane share count" is the only problem, just do the reverse split first.

Furthermore, combining the figures I gave you earlier on the share counts of some of the largest global corporations (Apple, Exxon, Walmart, Facebook, Amazon) with the usual the number of shares offered from the top 10 IPOs further dismantles your back of the envelope share count dilution figures - even with a massive reverse split - especially when you look at the accepted literature on reverse splits, the usual ratios and the reasons they are undertaken.

So your reasoning for thinking that there won't be massive dilution is simply that such high share counts and/or massive reverse splits have never happened before? The reasons for other reverse splits don't matter. FnF are in an unprecedented situation (total government control, no fiduciary duty to shareholders, etc.); an unprecedented solution should not be dismissed solely on that basis.

What kind of share price would be paid for a company with such a relatively outsized massive shareholder base whose profits are hampered by a government regulator with severe regulatory capital restrictions under the watchful eye of a dysfunctional Congress looking to buy votes with giveaways to the underprivileged.

Little to nothing by that logic. The former is not good for the existing common, and the latter means FnF would remain in conservatorship until 2028 (if Treasury cancels/converts the seniors) or 2040 (if they don't).

[FFFacts]

This is a great analysis and provides a good historical context. I believe you are 100% correct that a backdoor receivership was/is in the playbook.