$60 per share, target

Why FNMA is worth $60+, a brief summary

dgplexus1  Jun 29, 2013 5:42 AM Flag

Why FNMA is worth $60+, a brief summary

Fannie and Freddie never even needed government "help," they had much more capital than was required and were successfully raising capital in the private market! Government just wanted to use them like puppets to buy all the toxic junk the banks still had (that the banks originated.) Fannie and Freddie bailed out America.

The Takings Clause of the Fifth Amendment of the Constitution guarantees that all of the "dividend" payments go toward principle, and the government cannot take one dime more after repayment is finished, which will be soon. Conservatorship ends when Fannie and Freddie have "sufficient" capital again, which would be very soon after that, or the conservator is sued and conservatorship ended by the courts. Very simple. Solvent companies in conservatorship are never liquidated or wound down. If the government did so, the Takings Clause guarantees that the government must compensate us in full, for complete enterprise value and future profits, taking into account their roughly 90% market share (between Fannie and Freddie.) They would have to pay more than $300 billion for the company, easily more than $60 per common share. Fannie and Freddie remain private, shareholder owned companies with tremendous value.

The 79.9% figure is merely the common stock ownership the Treasury would have in Fannie and Freddie if they couldn't repay their debts and the Treasury exercised their options for common shares, as an alternate way of being repaid. Since Treasury will soon be repaid IN FULL, they can't exercise those warrants without violating the Takings Clause and having to compensate us fully (for 79.9% of the companies' fair market value, including future profits!) If people understood their Constitutional rights, FNMA would be trading aboge $40 already. What's going to happen, a bloody communist revolution where the Constitution is torn up and thrown out? The chance of that succeeding is zero.

See next message for further reading.

For further reading (please locate these articles via Google):

Causes of the Great Recession (on Wikipedia)

"GSE Critics Ignore Loan Performance," by David Fiderer

"What's a Fannie Worth?," by Bruce Krasting (outstanding FNMA shares are under 1.2 billion)

"Let Fannie Mae, Freddie Mac Live, Hedge Fund Investor Says," by Shanthi Bharatwa
(Michael Kao, founder of hedge fund Akanthos Capital, estimates Fannie Mae's value at 200 to 300 billion.)

Ralph Nader's letter to Treasury Secretary Jacob Lew, dated May 23, 2013


Also, please review what occurred in connection with the Savings and Loan Crisis and its aftermath, in the late 1980s and early 1990s. Most of the legal concepts at issue now, were tested then, and legal precedents set. Owners of beaten-down shares were, in many cases, redeemed spectacularly in the courts, as those shares remained the instruments of ownership. 

$100 to $160 (closer to $160) per share appears to be the fundamentals-based target range, based on 2012 revenue and a P/E approaching normal historical levels (taking into account the Common and Preferred shares. Senior Preferred shares must be retired soon.)

With share price under $2 (!!), most people must think a communist revolution that throws our Constitution and laws out the window is nigh inevitable. I emphatically disagree. Holding extremely tightly until events prove my thesis out. :-)

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