User 246139

Whose Freddie Investment Thesis Is Right?

Everyone is missing the point. If FRE or FNM are deemed to be undercapitalized by their regulator which is highly likely for FRE by the end of the 3rd quarter since its cushion at the end of the 2nd quarter was $2.7 billion - what are the companies' options?

A. They raise more equity capital, B. They shrink their assets, and/or C. Their regulator takes them over.

For option A, FRE announced in May they were raising new equity capital and almost 4 months later they have not. It appears there is not any appetite for a $5.5 billion equity investment in a government agency
(to use Mr. Grant's term).

For option B, if the government agencies (Mr. Grant's term) shrink their assets then they would not be supporting the mortgage market which would mean that the government agencies (Mr. Grant's term) would not be fulfilling their missions. If the government agencies (Mr. Grant's term) are not fulfilling their missions then why would they exist? They have to fulfill their missions other wise there is no point in having those government agencies (Mr.Grant's term).

So if option A is not possible because no non US government entity is willing to invest new equity capital in the government agencies (Mr. Grant's term) and option B is not possible because it would negate the reason for the existence of the government agencies (Mr. Grant's term), then option C is the only alternative.

So the question is will the government agencies (Mr. Grant's term) fall
below their capital requirements as determined by their regulator?