The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Risk

URL:  http://boards.fool.com/quoti-mean-on-a-1-trillion-asset-base-25-20691171.aspx

Subject:  Re: FNM, again Date:  4/27/2004  8:31 AM
Author:  ItGoesToEleven Number:  276 of 297

"I mean, on a $1 trillion asset base, $25 billion becomes little more than a 2.5% hedging error."

"But with total stockholder equity of only $16.8 billion, it's bit of a bummer for shareholders isn't it? Leverage of 55:1 isn't real forgiving of 2.5% errors. It isn't even very forgiving of 0.5% errors. "

Todd


All true. However, the underlying portfolio has an LTV of 60% - 65%. So, things have got to get pretty ugly before FNM needs to tap the reserves, and then Shareholder equity. Of course, the risk is in "the tails". If the FNM derivative usage is truly "hedge-based", the risk-profile on the interest rate side is truly improved. IF FNM is taking directional positions in their derivative portfolio, all bets are off.


Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us