I do not know what the share price will be on 10/17 in the event the US Treasury exercised or sold the warrants on GSE stock. But you can think about this way and make your own estimation.
Exercising the warrants can be done in a number of ways. Here is one way. First, the number of shares of FNMA estimated by Fannie Mae would increase from 1.16 billion shares to 5.762 billion, which will dilute the share price to 20% of what it is currently. This means that with the exercise of the warrant, an approximate increase of 4.6 billion FNMA shares outstanding would occur and these would be owned by the US Treasury.
Next, since the warrants appear to be call warrants, the US Treasury can purchase these 4.6 billion FNMA shares at the agreed upon nominal exercise price of .0001 before 2028 for $460,000. The share price would dilute the current market price from $1.38 per share to about $.276 per share.
Once owned the US Treasury has different options to cash in on the 4.6 billion FNMA shares. One would be to sell the shares through a third party seller over a period of time and anonymously at market prices as it goes. If the market price increases from $.276 per share at the dilution when the warrant was exercised to $1.276 after the dilution, then the US Treasury gain would be $1.00 per share or a 9999% increase from the exercise price of .0001. If all 4.6 billion could be sold at $1.276, the US Treasury would make $4.6 billion.
There is also a possibility of driving the market price much higher than $1.276. What would happen is beyond my estimation powers. The conditions surrounding the exercise of the warrant will determine the price direction and its speed of change. However, the US Treasury does not seem to get involved in exchange trading as a regular enterprise.
However, it is more likely that The US Treasury will auction their warrants for FNMA (and FMCC) shares in blocks to the highest qualified institutional bidder or bidders. In the process of doing that the market price will rise and the US Treasury will make even more money. This has been done before where warrants were obtained when TARP funds were given out. This appears to be the most likely path, though it is almost like throwing money away.
In any of these cases, the market price would move up greatly if there was clear indication that the GSEs were back in their quasi-public or quasi-private role in the housing finance industry.
It would seem that the US Treasury would be better off exercising the warrant or auctioning the warrants later than sooner for immediate gain. The US Treasury could realize a gain 10 or 20 times or more than that amount by letting the market move with the positive reappearance of the regulated, reformed and restored GSEs in their former role in the housing finance system. But can we count on the US Treasury to be savvy and free in business matters with the private sector?
News 
Market Data 
Discover 
AI
