Saturday, February 18, 2017

Fannie Mae core capital - 2016 10-K page F-57

The following table displays our regulatory capital classification measures.
As of December 31, 2016 (Dollars in millions)

Core capital                                                                                             $ (111,836)
Statutory minimum capital requirement                                                    $ 24,351
 Deficit of core capital over statutory minimum capital requirement    $ (136,187)

The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings (accumulated deficit). Core capital does not include: (a) accumulated other comprehensive income or (b)  senior preferred stock. (2)   Generally, the sum of (a)   2.50%  of on-balance sheet assets, except those underlying Fannie Mae MBS held by third parties; (b)   0.45%  of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and (c) up to  0.45%  of other off-balance sheet obligations,  which may be adjusted by the Director of FHFA under certain circumstances.

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If the senior preferred shares are recharacterized as a $116,149 loan that has just been repaid with interest, then the core capital increases to $4,313.  If some of the $23,465 allowance for loan losses can be recharacterized as core capital then even better.  With earnings at ~$10B per year, it would only take a couple of years to reach the statutory minimum capital requirement. However, it would take 7 or 8 years to reach Ackman's proposed $79B or Tim Howard's proposed $70B through retained earnings only.  Some dilution via a capital raise is probable because 7 or 8 years is too long for bureaucrats and politicians. 

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