Page 33 - May-June 2018 GSE Report Flip Book

FANNIE MAE AND FREDDIE MAC MAJAYN-UAJRUYNE20210818
Moelis envisages up to US$180bn of core capital through retained earnings and common
Leverage Ratio
stock issuance complemented by CRT and reinsurance transactions. This would add up to
The dual objectives of (a) ensuring sufficient permanent
over 3% core capital with another 2% from CRTs.
capital and (b) continuing to incent the distribution of
guarantee risk to private counterparties and the capital
markets can be achieved through the establishment of a
Table 1: Leverage Ratio Requirements
two-tiered simple leverage ratio, as illustrated below.
PROJECTED CONSOLIDATED LEVERAGE FOR FANNIE AND FREDDIE
1.0%
CAPITAL
Primary Leverage Ratio Core Capital 3.0% of Total Assets
1.3%
0.3%
1.6%
1.5%
MINIMUM THRESHOLD
Secondary Leverage Ratio Core Capital plus Outstanding CRT 5.0% of Total Assets
Figure 4: Projected Consolidated Leverage Ratio $ Billions at December 31
6.0% 5.0% 5.0%
Target
Ratio 4.0%
3.0% 3.0% Target
Ratio 2.0% 1.0% 0.0%
5.1%
1.7%
2.6%
1.9%
3.1%
4.3%
3.3%
1.0%
2016A
1.6%
2017P
0.3%
2018P 2019P
2020P
Core Capital1
($188) $12 $75 $131 $167
CRT Capital2
54 67 78 88 97
Source: Company filings, Moelis estimates
1. Core Capital includes Common Equity and Junior Preferred Stock
2. CRT Capital includes CRT debt issued and outstanding to third parties
Source: Blueprint for Restoring Safety and Soundness to the GSEs, Moelis & Company LLC, June 2017
“Our plan maintains all the reforms already enacted,” said Parsons. “The GSEs could be made to resemble more of an income-orientated stock than a growth stock. Our plan not only accomplishes Treasury Secretary Mnuchin’s principles but also bears striking similarity to Mel Watt’s plan, with the exception that he proposes an explicit 100% government guarantee of
mortgage bonds—which is compatible with the Moelis plan, but adds the complication of requiring
Congressional approval.”
Blueprint for Restoring Safety and Soundness to the GSEs 12
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