Fannie Mae-No Politics (FNMA)

[kthomp19]

Why do preferred shareholders think a conversion is coming ?

I'm glad you asked. A conversion:

1) Allows for a mostly cashless settlement to the lawsuits; only the individually named common shareholder plaintiffs would have to be paid with cash and there just aren't that many of them.
2) Flattens out the capital structure, allowing new non-cumulative pref shares to be issued without creating too much of a dividend overhang on top of the commons.
3) Is completely legal; it does not violate the Fifth Amendment or any other law.
4) Has been mentioned as a possibility by Calabria (in a CNBC interview in May), Treasury (in its September plan), and ACG Analytics (in its September video), among many other sources.

On the flipside, there are no disadvantages to a conversion from FHFA's point of view, and only to Treasury if the conversion somehow dilutes the warrants (which is not a necessary component).

A better question would be: why would anyone think that a conversion is not coming?