Replies to post #767843 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

Their current equity stake sits on top of everything already, so by that argument the recommendation should be that they should literally do nothing.

There's in fact a huge risk to all shareholders (commons and JPS) that 'they' will continue to do "literally nothing".

But Calabria's thoughts are based on an "if-then"-scenario. What happens if...?

For fast recap, a SPS-to-common-conversion is a most likely working solution. Likewise, a warrant exercise with cancellation of the SPS would work. But in the first option the government gets over 99%, in the second option only 79.9%. In $$$ terms, it would receive an estimated $100 billion in the first variant, and $80 billion in the second. For these extra $20 billion, the government is apparently willing to throw legacy shareholders under the bus. All the lies spread since 2008 (death spiral) are aimed at this.

That this is blatantly unfair (as is the NWS) is beyond question. But they are doing it for one simple reason, and that reason is "yes we can". Once the SPS-to-common conversion has taken place, the legacy common holders can only seek damages from the CoFC, currently appr. 60 cents.

Calabria's "if-then"-scenario assumes a senior-to-common conversion. This means, it is only a thought experiment for now.

And in that thought experiment, the government would be worse off because afterwards the JPSs would be ranking higher in the capital stack than the commons the government gets from the SPS conversion. There is no reason to doubt that the Treasury is not interested in such an outcome - and certainly not the subscribers of the new shares in the capital raise.

Logical conclusion: There can only be a simultaneous conversion of SPS and JPS into commons - if a conversion is planned anyway.

[Donotunderstand]

I really could care less about what Treasury wants. Their current equity stake sits on top of everything already, so by that argument the recommendation should be that they should literally do nothing. Wait for the GSEs to hit their capital thresholds, and then resume the NWS. Who cares about JPS or common if you are the Treasury.

or ?
call the SP paid in full and use the WTS for 80% of a $25 per share company at 5B shares and 125B value ? The LARGE - immediate huge cash haul - should be attractive?

[kthomp19]

Yes, existing common is very suppressed due to questionable if not completely illegal actions by FHFA and Treasury. If (and that's a big if) rectified, the common value will not be where it is today.

It could be lower! It all depends on how Treasury resolves the seniors.

Stated value of juniors, so not even a slight haircut eh? Sounds like wishful thinking.

The bigger the haircut that the juniors take, the less they will leave behind for the existing common. That "wishful thinking" is actually good for you and is something you should be hoping for yourself.

Yah, how can I forget - you keep bringing it up as if it means the future is set in stone. I recall lots of things that almost happened. Like when I almost won the lottery.

More false equivalence fallacy. A senior and junior-to-common conversion almost happening is nothing like the lottery. It shows the mindset of the DOJ (that they view Treasury writing off the seniors as illegal) and is direct evidence that informs future expectations.

And yet you seem to think that Treasury is more likely to do something they think is illegal (writing off the seniors) than something they think isn't (the conversion). I really don't get it.

Where does the $100B come from? That's a large offering.

It comes from investors who are looking to make a return. Saudi Aramco recently looked to do a $50B share offering, after actually doing one worth $30B a few years ago. Petrobras successfully raised $70B. Both of those companies are in countries where the rule of law is quite a bit weaker than it is in the US. If FnF want to raise $100B and are assured that they will exit conservatorship upon completion of the deal, finding the money will be easy.

In the meantime Treasury owns a majority stake? Taxpayers on the hook? Explicit guarantee?

1) Treasury's 92% stake in AIG wasn't a problem. They signed an agreement to vote their shares in proportion to all other shareholders' votes, effectively eliminating their voting power.
2) As long as the funding commitment in the SPSPAs exist taxpayers will be on a (limited) hook anyway.
3) An explicit guarantee can only happen if Congress passes a bill including it.

Those are not slam dunk selling points.

If those things are viewed as negatives by outside investors, all that will serve to do is lower the per-share price of the SPO, and thus what the existing commons are worth at that time.