Replies to post #793801 on Fannie Mae-No Politics (FNMA)

[DaJester]

Sorry KThomp, I must have missed this bucket of replies. I'm sure you've been anxiously waiting for my responses. :)

It's a slow post day, so good time to catch up.

"I think it's a 25% chance of none converted and all written down.
50% that all of it is converted.
25% that only the $193B worth of balance sheet SPS is written down and the rest is converted."

Thanks for sharing. Personally, I think this is a bit too simplistic. You are inferring the impact to common, but what happens to JPS in each scenario?

"whether or not this is possible isn't really the point. What matters is the probability estimate of whether or not it will happen. [...] Possibilities don't matter here, probabilities do."

For me... Planning for success means planning for both - probabilities and possibilities. In other words, based on your scenarios above, I can make money in any of them depending on what happens with the JPS in conjunction with the common. Having the right mix of JPS and Common means the only way I lose is if common goes to zero and JPS takes a haircut greater than 78.5%. I'm prepared for this possibility - I could lose my entire position. However, I am giving this a less than 20% probability of happening. Any other resolution puts me in the green - so in my mind, I'm 80% sure I'm in the money. It's just a matter of how green, and if it was worth the opportunity cost. If common goes to $2 and JPS gets 50%, I get a 3x return - far short of my goal for the amount of time vested. But it doesn't take much upward action to put me in the serious green. If your first scenario of all write-down happens, I'll be swimming in it.

[Ace Trader]

HOLD YOUR HORSES !

Quote:
25% that only the $193B worth of balance sheet SPS is written down and the rest is converted.

That latter scenario exists because a conversion of the balance sheet SPS involves moving that amount into the common stock line rather than retained earnings. Both common stock and retained earnings count towards all forms of regulatory capital so that's not an issue.

End Quote:

You could be onto something there! For saving face from voters AKA tax payers and saving some sort of face from Shareholders converting the amount needed to repay the 193 billion with the SPSA. Converting enough to payout all JPS from the SPSA leaving the 2 companies with no debt on the books and holding there retained earnings so far. Then Gov to convert the rest of the SPSA and auction off those to raise money for the Gov ???

Warrants are warrants stated in the agreement that they were merely there to recoup there investment, Warrants are not worth $193 billion

Lastly, we must take a look at what does the Gov want to avoid ?

1, Gov will want to walk away looking good to tax payers!
2, While making billions of cash.
3, It will want to Pay off the GSE debt!
4, It will want to establish a yearly commitment fee to fund the FHFA