Replies to post #808833 on Fannie Mae-No Politics (FNMA)

[trunkmonk]

they will also weight how long they can drag it out in court as well after the fact, I know of lawyers just waiting for such a gold mine of rewards coming from the governments laser focused greed and theft. At the end of the day, wall street will decide IPO price and livable dilution, none will come if FHFA and Treasury to do what they did ever again. that has to be ironed out. balance between greed and truth, with as little risk as possible to markets. muck it up like SM,MC, and Mad Max lead congress did by adding higher standards, more risky loans, and death spiral financing on the way out the door while trying to dump on markets would prove fatal in any housing crisis, and cause markets to collapse with lack of trust.

[mrfence]

One will decide.

This isn't a random variable. Nobody is going to spin a wheel to determine how much equity the Treasury decides to steal. This will be a directive and decided by half a dozen people, or maybe less.

Nobody is stealing on MY watch!
$FMCC~ $FNMA~

[kthomp19]

What I'm hearing you say is:

- 85% chance the seniors are converted to common, and they will take between 90-95% equity
- 15% chance the seniors are not converted, in which case they will use warrants to take 80% equity
- 0% chance that something other than these two scenarios happen

You are giving 100% probability to an 80-95% window. No new/revised senior agreements based on future dividends or commitment fees, no partial exercising of warrants, no partial conversion or write-down to take a lower percentage than 90, just 2 scenarios and that's it.

Pretty close. 15% chance of 79.9%, 85% chance of 90-99.9%. Perhaps not equally weighted in that 90-99.9% range.

The 90% number comes from two sources: John Paulson's comments on live TV and one that just came out today: an interview with Mark Calabria in which he said "I don't know of any scenario where, you know, the American taxpayer doesn't own 90 plus percent of the companies." (start at 1:01:45).

The 95% number comes from two sources: the aforementioned Paulson interview and the FASB standards that would force the government to consolidate FnF's balance sheets onto their own if Treasury owns more than 95% outside of conservatorship. Treasury can still go above 95% during conservatorship and avoid consolidation, but they would have to get down to 95% upon exit so they might stop at 95% to avoid having to sell a chunk immediately upon exit.

I'm not saying that anything outside that band is absolutely impossible, but instead I think the chances of something outside that band are close enough to zero that I round it to zero in my estimate.

One other thing that I think you are misunderstanding: I think Treasury will end up with 80-99.9% of the final share count, i.e. after considering a junior-to-common conversion and capital raise. Your self-proclaimed "made up" scenario had Treasury only end up with just over 50% of the final share count, which would be an enormous haircut to their LP. I don't see that as realistic.

Regardless of scenario 1 or 2, you just need to state a % chance that JPS will get 90%+ of par, and then we can sticky this to see how accurate you are.

90+% immediately upon Treasury resolving its stake (via senior pref conversion or writedown and warrant exercise) or down the road?

I think the juniors could take the 18% haircut envisioned in the new Moelis plan and have only 82% of par immediately post-conversion, but that could grow post-conversion and thus let the juniors end up with more than 82% (and likely more than 100%) of par later.

This isn't a random variable.

Again, you missed the point. You're trying to pin me down on a specific post-restructuring share count, whereas I see a range of possibilities, albeit rather narrower than many.

Nobody is going to spin a wheel to determine how much equity the Treasury decides to steal.

What on earth does stealing equity even mean? Is this yet another accusation of illegality with no intention to file a lawsuit?

This will be a directive and decided by half a dozen people, or maybe less.

The result of a spin of the roulette wheel is determined by the actions of one person. That doesn't mean it can't be modeled like a random variable beforehand.

[kthomp19]

Regardless of scenario 1 or 2, you just need to state a % chance that JPS will get 90%+ of par, and then we can sticky this to see how accurate you are.

Your turn. Time to hear your answers to your own questions.

What probability do you give for SPS to be converted to non-cumulative? What probability do you give a a partial LP writedown? What probability do you give for Warrant exercise? What probability do you give to JPS being converted and at what haircut? What probability do you give to the FHFA being disbanded?