Replies to post #747127 on Fannie Mae-No Politics (FNMA)

[kthomp19]

I'm splitting my response to the injunction stuff into a separate post.

If Litigants go to court asking for an injunction against the US's Dilution solution, wouldn't that slow down the planned 2nd steal of shareholders wealth?

What would be the impact on prospective investors who are shelling out Billions of dollars in fresh capital of the uncertainty of pending litigation?

I hope your response again isn't, "Hell if I know".

Certainly not. I know exactly what would happen here.

On p. 23 of the Supreme Court's Collins opinion they said:

Instead, we conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.

That was after saying that the anti-injunction clause (aka 4617(f)) would not apply if FHFA exceeded its statutory powers as conservator (last full paragraph on p. 12).

Let's compare and contrast the NWS with a senior-to-common conversion:

1) The NWS unquestionably hurt the companies and hurt their regulatory capital levels. A senior-to-common conversion helps both (+$193B to core/Tier 1/CET1 capital at zero cost in an instant).
2) The NWS prevented FnF from ever raising capital because nobody would ever buy shares while the seniors - with their enormous liquidation preference and rights to all of FnF's income - were in place. A senior-to-common conversion paves the way for FnF to raise capital because that liquidation and dividend preference would be out of the way.
3) The NWS was a flagrant violation of FHFA's (supposed) mandate to conserve and preserve assets. A senior-to-common conversion doesn't affect assets, but again makes raising capital possible.

The Supreme Court said that the NWS was a valid act of a conservator. Given that baseline, there is no universe in which FHFA offering Treasury a senior-to-common conversion is not also a valid act of a conservator.

Therefore the anti-injunction clause of HERA, 4617(f), will prevent any plaintiff from seeking injunctive relief over a senior-to-common conversion.

[kthomp19]

It's hard to attract private capital willing to deal with an unreasonable governmental actor who has Nationalized the Shareholders capital and can see clearly in a short time frame just how abusive and coercive the governmental overreach and theft was.

Then look forward to between 5 and 17 more years of conservatorship.

Also consider the fact that just because you wouldn't invest under such circumstances, that doesn't mean nobody else would.

Because as Regulator FHFA under HERA can command the GSES to artificially inflate credit loan loss reserves and write down $50B DTA'S.

Actually no. FHFA did those things immediately after appointing itself conservator. FHFA doesn't have that kind of power over FnF when they are out of conservatorship and classified as "adequately capitalized" by HERA.

Just horrible behavior from our federal government to destroy these Public Mission/Private Capital enterprises.

I agree about the horrible behavior. I just think that you overestimate the importance that outside investors' will place on such deeds as well as underestimating their greed. A difference of opinion.

And unfortunately for us, the companies themselves are actually doing quite well. There is very little political appetite to change the status quo.

If the UST wants to cash out a 2nd time from the theft of shareholders wealth and wants the best possible price, it would likely sell off the warrants over subsequent time frames as the investor risks of potential future regulatory misdeeds and conservatorships and Nationalization retreats gradually, perhaps after certain milestones are reached.

They would make even more money by converting the seniors to commons, and everything else would be exactly the same.

Isn't that what happened with AIG and weren't they allowed to repay the 'bail out' funds from the federal government?

An unfortunate choice of comparison there. Treasury converted its AIG preferred shares into common stock, ending up with a 92% of the outstanding common shares. That's a lot more than 79.9%.

So you see another public announcement about the dilution solution after it's already done?

Yes, just like the NWS. It's certainly possible that news of it could leak out. If you see the commons drop like a rock on unusually heavy volume (50+M shares) with no corresponding action in the juniors, I would suspect a leak of such news.

Might be a hard sell politically after 10 years of profitability, the nationalization of the GSES, and other coercive and abusive governmental overreach, to pick one investor class over the other.

This would be Treasury picking themselves over everyone else. The juniors would fare far better than the commons, sure, but that's just a structural difference between the share classes. The "we're all in the same boat" argument sank a lot time ago.

So you envision a 'secret sale' to one or more institutional investors and an announcement after the fact?

I can't say I expect one, but it wouldn't surprise me. Treasury took its time selling its AIG stake, though, so it could do the same with FnF. The key part is fixing the common share count, which is one big thing buyers of the converted seniors will care about.