FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[no_free_lunch]

Pauly, always good to hear your thoughts.  I think you under-estimate the degree to which POTUS is a patriot.  The amount of risks he is taking, where he is taking them (e.g. travel ban) doesn't make sense from a purely financial point of view.

 

 

 

Unless Treasury exercises all of its warrants immediately–which would cause massive dilution and create a nearly insurmountable hurdle to reforming them and bringing them out of conservatorship

 

I don't know.  I have read this a few times and I think this is an incomplete argument.  Exactly WHY would it be an insurmountable hurdle?  At current prices we are talking $15B in stock vs a company that will probably trade north of $100B once recapped.  As far as recap goes, it creates like a 2 foot hurdle to raising enough equity.  So maybe they need to retain profits for 1 more year, after 9 years in conservatorship, big deal. If anything it will be easier to bring them out of conservatorship if warrants are exercised because the government is getting their share and it is an easier argument to the taxpayer.  Or like spekulatius said, convert and sell.

 

I know, talking against myself here but since I don't have any influence I might as well at least be rational.

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

I think it is priced in.  Fannie is trading at what $5B market cap without the warrants?  Which is not much higher than quarterly earnings!  Feds could exercise the warrants/preferred's and then raise equity as best they can.  It's a duopoly, who wouldn't want to invest, especially given S&P 2300.

[investorG]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

[investorG]

Curious how many here have examined Ackman's proposal and what thoughts are regarding it as a viable solution. It seems to be very well crafted, but the amount of time for recap is so long that I can't see how it fits with Mnuchins comments. It does, however, allow for solid value in terms of warrants. Not that Trump would care at all, but if they ever adopted this plan I think they would be relentlessly attacked on the grounds that all the hf benefit, but the companies remain unsafe, taxpayers at risk, etc. (suddenly the capital matters from the crowd who completely ignored last 5 years). I also wonder what/if any relationship between Ackman and Mnuchin, as well as, Ackman and Berkowitz.

 

there's a reasonable chance that ackman's proposal is stale in terms of any future negotiations.  different time and situation vs a few years ago.

[Flynnstone5]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

 

Despite litigation status, do Trump/Mnuchin already have access to majority of docs? Also, from a legal aspect can Fairholme reach out to Sessions and DOJ following his confirmation or is that not allowed during active litigation? We know the players who'll be making the case for prf'd shareholders, but I wonder who makes it for the common in the event Icahn is no longer an owner. Ackman can certainly get a meeting, but there seems to be no relationship.

 

 

[investorG]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

 

Despite litigation status, do Trump/Mnuchin already have access to majority of docs? Also, from a legal aspect can Fairholme reach out to Sessions and DOJ following his confirmation or is that not allowed during active litigation? We know the players who'll be making the case for prf'd shareholders, but I wonder who makes it for the common in the event Icahn is no longer an owner. Ackman can certainly get a meeting, but there seems to be no relationship.

 

 

if they keep the warrants in some fashion, then you're on trump's / taxpayer team in common.

 

if they don't keep the warrants, even better (in most scenarios).

 

if the shares were higher it would require bigger thinking than this simplified analysis imo. but at a 5bn - 25bn mkt cap (with decent odds it's not the high end)?!?!?

 

those selling imo are betting on either confirmation troubles or immediately pending negative court news, which clearly are risk factors.

[merkhet]

Devos getting confirmed indicates that Mnuchin will likely get confirmed as well. The opposition for Devos was significantly stronger IMO than the opposition to Mnuchin.

 

That being said, I'd still feel safer if the new administration releases the documents held under privilege, in case something happens to derail the current administration before they finish their objectives re Fannie & Freddie.

[investorG]

I agree that the dems will oppose Mnuchin on probably any plan at all that benefits shareholders. They will be more concerned that hf's will makes money than any shred of common sense and/or what is best for the companies future and home ownership.

 

Is there a plan of action that Mnuchin can execute on his own at will without any democratic involvement? I believe that he can structure a 4th amendment, exit the NWS and  exit conservatorship without going through congress. Can he follow through to the end by settling with P's, adjusting warrant terms if desired, structuring recap and relisting all without their involvement? I'm interested in what he's capable of completely on his own as this will likely be what's necessary to avoid another massive obstruction attempt. Thoughts appreciated in advance.

 

true, the trump admin can improve the shareholders' situation for justice by a good deal but not all the way, congress is needed. 

 

one potential view is that the admin will tie GSE reform thru congress to other financial reform that the traditional R's (henserling, corker) want, sort of a tandem deal.  for instance, I don't think the president cares too much about the Volker rule but perhaps he'll go along if they don't obstruct his priorities.

[orthopa]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

 

Despite litigation status, do Trump/Mnuchin already have access to majority of docs? Also, from a legal aspect can Fairholme reach out to Sessions and DOJ following his confirmation or is that not allowed during active litigation? We know the players who'll be making the case for prf'd shareholders, but I wonder who makes it for the common in the event Icahn is no longer an owner. Ackman can certainly get a meeting, but there seems to be no relationship.

 

 

if they keep the warrants in some fashion, then you're on trump's / taxpayer team in common.

 

if they don't keep the warrants, even better (in most scenarios).

 

if the shares were higher it would require bigger thinking than this simplified analysis imo. but at a 5bn - 25bn mkt cap (with decent odds it's not the high end)?!?!?

 

those selling imo are betting on either confirmation troubles or immediately pending negative court news, which clearly are risk factors.

 

negative court news would certainly be a optical negative but honestly does it even matter at this point? I bet if thats the case you see the prfd drop slightly and if at all come right back on big volume.

 

IMO this is no longer a legal story. The thesis for the investment has passed. This is Mnunchin all the way. This investment lives and dies by what he does influenced or not by outside interests.

[SnarkyPuppy]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

 

Despite litigation status, do Trump/Mnuchin already have access to majority of docs? Also, from a legal aspect can Fairholme reach out to Sessions and DOJ following his confirmation or is that not allowed during active litigation? We know the players who'll be making the case for prf'd shareholders, but I wonder who makes it for the common in the event Icahn is no longer an owner. Ackman can certainly get a meeting, but there seems to be no relationship.

 

 

if they keep the warrants in some fashion, then you're on trump's / taxpayer team in common.

 

if they don't keep the warrants, even better (in most scenarios).

 

if the shares were higher it would require bigger thinking than this simplified analysis imo. but at a 5bn - 25bn mkt cap (with decent odds it's not the high end)?!?!?

 

those selling imo are betting on either confirmation troubles or immediately pending negative court news, which clearly are risk factors.

 

I think a lot of people are overlooking the serious risk of dilution to current common shareholders.  I only own some for optionality and for the unlikely event of a retained earnings recap

[Flynnstone5]

 

It's a hurdle because as written, who would invest knowing they can instantly be diluted 5x? To convert and sell screws shareholders and only hinders the ability of the companies to raise capital. Their goal is going to be to raise capital quickly with the overall purpose of strengthening the housing market. Not to say this means they void them, but it certainly appears that they have to be adjusted in addition to whatever P's are able to achieve through settlement.

 

bingo. 

 

the lack of creativity by investment professionals in regard to the warrants is astonishing.

 

if/when trump sits down to decide on amendment 4, after being briefed on the contents of most if not all of the 12000 documents and given the financial return to date for the taxpayers, what's he going to do?!?!

 

Despite litigation status, do Trump/Mnuchin already have access to majority of docs? Also, from a legal aspect can Fairholme reach out to Sessions and DOJ following his confirmation or is that not allowed during active litigation? We know the players who'll be making the case for prf'd shareholders, but I wonder who makes it for the common in the event Icahn is no longer an owner. Ackman can certainly get a meeting, but there seems to be no relationship.

 

 

if they keep the warrants in some fashion, then you're on trump's / taxpayer team in common.

 

if they don't keep the warrants, even better (in most scenarios).

 

if the shares were higher it would require bigger thinking than this simplified analysis imo. but at a 5bn - 25bn mkt cap (with decent odds it's not the high end)?!?!?

 

those selling imo are betting on either confirmation troubles or immediately pending negative court news, which clearly are risk factors.

 

I think a lot of people are overlooking the serious risk of dilution to current common shareholders.  I only own some for optionality and for the unlikely event of a retained earnings recap

 

There hasn't been a day that I don't worry about dilution to common. I find it so easy to go back and forth. Part of me thinks Trump will protect all shareholders, want to maximize common for their own benefit through some sort of warrant exercise, convince prfd litigants to a mandatory prfd to common conversion based on a solid future common pps that provides even greater returns to prfd, nice higher strike on warrants exercise price, faster recap possibilities through a higher common pps, etc., BUT next day I think prfd's get what they want especially given the major friendly's around Trump, and commons some how get screwed, who's making the case for them, Ackman seems to have no real relationships with key admin, suppose Icahn doesn't even own any more, whose briefing Trump and what if everyone benefits at the expense of commons. I'm 50/50 and really entered the prfd as a hedge on my common. WTF knows? My hope has been the gov provides a line of credit and adjusted exercise price with the intention of encouraging investment and achieving a strong common pps, get prfd's to convert to common based on larger future returns over par and gov can sell off some adjusted blocks as we go. I hope it's a another Trump/Patriot ending. Be nice to take the cash or own a sizeable position in a Fortune 50, move on to the next opportunity.

 

 

Just noticed Sargent at Arms has dragged senators in tonight to pull Sessions vote forward. Also, Warren has been denied the ability to speak during Sessions debate do to violation of rule 19 as in STFU Pocahontas.

[TheAiGuy]

  You hear that folks, POTUS said New NAFTA Deal could pay for the Wall. Doesn't sound like any other imminent source of funds are being earmarked for public coffers anyways. Then again, I'm no Psychiatrist, (it's true) but isn't that how stalkers read their tea leaves too? I swear I saw a sign in my toast this morning that looked like Warrants were being cancelled. Or maybe, that was just my subconscious aligning what it thinks of this investment theory(read:gamble), with my breakfast of choice, toast.

 

  Ah yes, nice to see MSM highlight the Ayatollah's rant out about the "real" US and declaring that now you will see our ire. As if it's POTUS's fault that today, Feb 07, 2017, due to POTUS IranBan, radical wackjobs all over the world are going to start blowing themselves up in suicide attacks while yelling allahu akbar. Like one of Jeffrey Dahmer's victims fighting back to Jeff's reply "Oh ya, well now I'm going to eat you!" Wait for it, next death, POTUS fault, 100%. Won't matter who, what, where, when, why. Unfortunately how radicals view things as well, facts don't matter anymore, anywhere.

 

  I appreciate the wide latitude here, but I find this all relates to the constant drip-drip Chinese Water Boarding Slo-Mo Stlye, Antagonizing of POTUS. What's in it for him? imho....He will never, ever receive widespread intangibles such as respect, recognition, admiration etc (deserved or otherwise) unless he personally punches a suicide bomber's plane out of the sky. Grotesquely, sadly, but assuredly so, unlike what they did with obama (read:FastFurious/Benghazi/VA etc) MSM will keep a body count in POTUS watch.

 

  Uh, that was morbid, so I give you this. I noticed a disclaimer on a bottle of sleeping pills the other day that read "May cause drowsiness." May.....cause drowsiness!? WTF is that, wasn't that the point!? What's next, a disclaimer on a box of condom's that reads "May contain nuts" lawyers huh....sheesh... ;D 8) ::)

 

PM,

 

I have absolutely no idea what any of this means but damn, I have GOT to buy some FNMAS.

[Sunrider]

Trump will make your country less safe, irrespective of how many planes he will claim to punch out of the sky. Sadly, for someone living in a big country, without much actual (not Fox/CNN/choose your poison of choice) exposure to the rest of the world, it is hard to imagine that things look, feel, run differently elsewhere to what one knows and that relationships between nations cannot be conducted as a series of independent deals (or at least not very successfully or sustainably).

 

Now, back to the topic at hand: What is your message actually telling us with respect to the GSEs?

 

As I said before, I REALLY struggle to extract meaning from your verbal dump. :o

 

Thanks.

 

  You hear that folks, POTUS said New NAFTA Deal could pay for the Wall. Doesn't sound like any other imminent source of funds are being earmarked for public coffers anyways. Then again, I'm no Psychiatrist, (it's true) but isn't that how stalkers read their tea leaves too? I swear I saw a sign in my toast this morning that looked like Warrants were being cancelled. Or maybe, that was just my subconscious aligning what it thinks of this investment theory(read:gamble), with my breakfast of choice, toast.

 

  Ah yes, nice to see MSM highlight the Ayatollah's rant out about the "real" US and declaring that now you will see our ire. As if it's POTUS's fault that today, Feb 07, 2017, due to POTUS IranBan, radical wackjobs all over the world are going to start blowing themselves up in suicide attacks while yelling allahu akbar. Like one of Jeffrey Dahmer's victims fighting back to Jeff's reply "Oh ya, well now I'm going to eat you!" Wait for it, next death, POTUS fault, 100%. Won't matter who, what, where, when, why. Unfortunately how radicals view things as well, facts don't matter anymore, anywhere.

 

  I appreciate the wide latitude here, but I find this all relates to the constant drip-drip Chinese Water Boarding Slo-Mo Stlye, Antagonizing of POTUS. What's in it for him? imho....He will never, ever receive widespread intangibles such as respect, recognition, admiration etc (deserved or otherwise) unless he personally punches a suicide bomber's plane out of the sky. Grotesquely, sadly, but assuredly so, unlike what they did with obama (read:FastFurious/Benghazi/VA etc) MSM will keep a body count in POTUS watch.

 

  Uh, that was morbid, so I give you this. I noticed a disclaimer on a bottle of sleeping pills the other day that read "May cause drowsiness." May.....cause drowsiness!? WTF is that, wasn't that the point!? What's next, a disclaimer on a box of condom's that reads "May contain nuts" lawyers huh....sheesh... ;D 8) ::)

 

PM,

 

I have absolutely no idea what any of this means but damn, I have GOT to buy some FNMAS.

[investorG]

 

I think a lot of people are overlooking the serious risk of dilution to current common shareholders.  I only own some for optionality and for the unlikely event of a retained earnings recap

 

that's a major reason why the current p/e is 0.5x -- dilution risk from warrants + additional capital.

[Flynnstone5]

If outstanding prf'd is $19B and was converted to common at 2.5 common/prfd (seems reasonable using par), would I be correct in estimating new common to be approximately 1.8B shares?

 

Trying to mull some ideas. If above is correct and I add to existing, then I'm at 3B shares common outstanding. Gov adjusts warrants to 2B shares, raises exercise price to $10 - $15?

 

Between retained earnings, maybe 10% new prfd issuance, capital up to the new exercise price -  is it not realistic to see Fannie Mae recapped in 3-4 years, commons at $30 and gov makes $30-$40B?

 

I may be totally wrong here so apologies if simply incorrect. I'm surprised that given so many experts in finance/restructuring, there are so few ideas put forth anywhere as to workable solutions. Many unknowns, but you would think it has to be possible to get some sort of clearer picture with assumptions of preserving, recapping, shareholder rights, settlement of some sort and gov maintaining some benefit aside from strengthening housing.

[Luke 532]

:)

Chuck Cooper emerges as Trump's likely choice for solicitor general

https://www.yahoo.com/news/chuck-cooper-emerges-as-trumps-likely-choice-for-solicitor-general-132121716.html

[SnarkyPuppy]

:)

Chuck Cooper emerges as Trump's likely choice for solicitor general

https://www.yahoo.com/news/chuck-cooper-emerges-as-trumps-likely-choice-for-solicitor-general-132121716.html

 

lol.

[SnarkyPuppy]

Optically this looks good, of course, but I would assume Cooper can't actually be involved in any decisions with respect to Fannie and Freddie given blatant conflicts of interest?

[Sunrider]

No I don't need to be spoon-fed an opinion as I'm usually not short of them myself. I also disagree with myself on a regular basis - I find it quite healthy and stimulating.

 

Your posts are not beneath me, it just that I have a hard time deciphering what it is that they actually say. Granted, English is not my first language, so this may be entirely down to my ineptitude. Yet, I did take the time out of my day to point that out because I appreciate the level of conversation happening on this board. Parsad and the members have done an admirable job of keeping these fora constructive and pretty civilised, with most conversations taking place in the threads they should be in.

 

This is not 'my' board. Yet, purely to help you find an outlet for what appears to be a lot of words twirling around your head, I'd say that you may find the Yahoo Finance boards to be a better echo chamber into which to discharge what's on your mind - the audience is likely more receptive and engaging on ad-hominem attacks there than it is here.

 

S.

 

 

  Aww, sunny, baby, do you really need to be spoon fed an opinion? Wow, ok big guy, you go lay all the eggs you want and after you've put something on a line, anything on any line, get back to me tough guy. Thing is my not so sunny disposed friend, your opinions carry identical weight as mine. So don't get your panties in a twist sport, ruling is coming to ahead soon. So whether you're giving or getting, we all just want to get a little ahead.

 

  Good advice? Coming across something you don't like, move on. Is this your board? Meantime, sunny, leave my posts alone. Should be quite easy to do since they're below you. I can assure you my gains or losses on this trade will dictate the results. Regardless of some snippity little shit that felt the need to take time out of his day to question what I do with mine. Honestly, sunny, gfy. But what do I expect from an avatar. Just another small person hiding behind a big website.

 

PM,

 

 

[Flynnstone5]

Optically this looks good, of course, but I would assume Cooper can't actually be involved in any decisions with respect to Fannie and Freddie given blatant conflicts of interest?

 

[Flynnstone5]

http://seekingalpha.com/news/3241593-tax-cuts-mean-frannie-need-treasury-draws-fitch?app=1&uprof=51#email_link

[Midas79]

If outstanding prf'd is $19B and was converted to common at 2.5 common/prfd (seems reasonable using par), would I be correct in estimating new common to be approximately 1.8B shares?

 

Trying to mull some ideas. If above is correct and I add to existing, then I'm at 3B shares common outstanding. Gov adjusts warrants to 2B shares, raises exercise price to $10 - $15?

 

Between retained earnings, maybe 10% new prfd issuance, capital up to the new exercise price -  is it not realistic to see Fannie Mae recapped in 3-4 years, commons at $30 and gov makes $30-$40B?

 

I may be totally wrong here so apologies if simply incorrect. I'm surprised that given so many experts in finance/restructuring, there are so few ideas put forth anywhere as to workable solutions. Many unknowns, but you would think it has to be possible to get some sort of clearer picture with assumptions of preserving, recapping, shareholder rights, settlement of some sort and gov maintaining some benefit aside from strengthening housing.

 

One thing to note is that a preferred-to-common conversion, or any other amendment to the terms of the preferred contracts, would require the approval of 2/3 of the (share-weighted) holders for each series. To get that sort of approval you would need a much higher ratio than 2.5. I know that I would personally want at least 7 commons per $25 par preferred share to even consider it.

 

And that would be only after the exercise or cancellation of the warrants. If the warrants were to still be outstanding at the time of conversion I would hold out for 35 shares per $25 preferred. This would essentially wipe out the current commons.

 

I would imagine that most people who invested in preferreds chose them over the commons because of safety, mostly due to contractual protection and the lawsuits seeking to enforce it. Those holders would need extremely attractive terms to agree to conversion and would want even more certainty than I would, i.e. warrants are resolved, recapitalization plan in place, reasonable assurance of no near-term secondary common offering, etc.

 

Please correct me if I'm wrong on this, but I believe the (junior) preferreds count as core capital towards a capital requirement, so conversion to common would require $19B more to be raised, a complete nonstarter in my opinion.

[no_free_lunch]

Midas/Flynnstone,

 

At the end of the day, how much equity do you see fannie mae needing to hold?  So hard for me to calculate this without that number and I think you guys implicity have a figure in mind.

[Flynnstone5]

If outstanding prf'd is $19B and was converted to common at 2.5 common/prfd (seems reasonable using par), would I be correct in estimating new common to be approximately 1.8B shares?

 

Trying to mull some ideas. If above is correct and I add to existing, then I'm at 3B shares common outstanding. Gov adjusts warrants to 2B shares, raises exercise price to $10 - $15?

 

Between retained earnings, maybe 10% new prfd issuance, capital up to the new exercise price -  is it not realistic to see Fannie Mae recapped in 3-4 years, commons at $30 and gov makes $30-$40B?

 

I may be totally wrong here so apologies if simply incorrect. I'm surprised that given so many experts in finance/restructuring, there are so few ideas put forth anywhere as to workable solutions. Many unknowns, but you would think it has to be possible to get some sort of clearer picture with assumptions of preserving, recapping, shareholder rights, settlement of some sort and gov maintaining some benefit aside from strengthening housing.

 

One thing to note is that a preferred-to-common conversion, or any other amendment to the terms of the preferred contracts, would require the approval of 2/3 of the (share-weighted) holders for each series. To get that sort of approval you would need a much higher ratio than 2.5. I know that I would personally want at least 7 commons per $25 par preferred share to even consider it.

 

And that would be only after the exercise or cancellation of the warrants. If the warrants were to still be outstanding at the time of conversion I would hold out for 35 shares per $25 preferred. This would essentially wipe out the current commons.

 

I would imagine that most people who invested in preferreds chose them over the commons because of safety, mostly due to contractual protection and the lawsuits seeking to enforce it. Those holders would need extremely attractive terms to agree to conversion and would want even more certainty than I would, i.e. warrants are resolved, recapitalization plan in place, reasonable assurance of no near-term secondary common offering, etc.

 

Please correct me if I'm wrong on this, but I believe the (junior) preferreds count as core capital towards a capital requirement, so conversion to common would require $19B more to be raised, a complete nonstarter in my opinion.

 

 

I don't see how you would ever expect that kind of ratio - seems totally unrealistic IMO. If par was $25, then 2.5 based on $10 common would be more than reasonable. Also, if major P's believed that common could see $30 for example, they could agree to conversion in a settlement and it's possible gov could force the conversion for others without a vote. Wasn't this done with Citi?

 

No offense, but this is the kind of crazy talk that you see in so many other areas. You might say that you'd never accept less than 7 common shares/prf'd, etc., but if major P's agree to settle, then whose going to carry your litigation? A solution is going to have to be realistic. I'm interested in examining some scenarios that could have a reasonable probability of working based on factors at play.

[Flynnstone5]

Midas/Flynnstone,

 

At the end of the day, how much equity do you see fannie mae needing to hold?  So hard for me to calculate this without that number and I think you guys implicity have a figure in mind.

 

$65-$75B based on Tim Howard's analysis.

[Guest cherzeca]

If outstanding prf'd is $19B and was converted to common at 2.5 common/prfd (seems reasonable using par), would I be correct in estimating new common to be approximately 1.8B shares?

 

Trying to mull some ideas. If above is correct and I add to existing, then I'm at 3B shares common outstanding. Gov adjusts warrants to 2B shares, raises exercise price to $10 - $15?

 

Between retained earnings, maybe 10% new prfd issuance, capital up to the new exercise price -  is it not realistic to see Fannie Mae recapped in 3-4 years, commons at $30 and gov makes $30-$40B?

 

I may be totally wrong here so apologies if simply incorrect. I'm surprised that given so many experts in finance/restructuring, there are so few ideas put forth anywhere as to workable solutions. Many unknowns, but you would think it has to be possible to get some sort of clearer picture with assumptions of preserving, recapping, shareholder rights, settlement of some sort and gov maintaining some benefit aside from strengthening housing.

 

One thing to note is that a preferred-to-common conversion, or any other amendment to the terms of the preferred contracts, would require the approval of 2/3 of the (share-weighted) holders for each series. To get that sort of approval you would need a much higher ratio than 2.5. I know that I would personally want at least 7 commons per $25 par preferred share to even consider it.

 

And that would be only after the exercise or cancellation of the warrants. If the warrants were to still be outstanding at the time of conversion I would hold out for 35 shares per $25 preferred. This would essentially wipe out the current commons.

 

I would imagine that most people who invested in preferreds chose them over the commons because of safety, mostly due to contractual protection and the lawsuits seeking to enforce it. Those holders would need extremely attractive terms to agree to conversion and would want even more certainty than I would, i.e. warrants are resolved, recapitalization plan in place, reasonable assurance of no near-term secondary common offering, etc.

 

Please correct me if I'm wrong on this, but I believe the (junior) preferreds count as core capital towards a capital requirement, so conversion to common would require $19B more to be raised, a complete nonstarter in my opinion.

 

pref conversion to common would be a capital nonevent.  midas, if govt stated that prefs would not be getting dividends and the trading price of pref is 85%, would you think differently? (in order to freeze out prefs divs cant declare common divs, but i could see this being SOP during capital rebuild period).