Fannie Mae Preferred S (FNMAS)

[thewhale]

I bought FNMAS after the Lamberth decision when shares cratered. Before that, I held only FNMA. But one thing you have to understand is that there’s currently no downside advantage to holding the junior preferred stock, like FNMAS, over the common. This is because of Govt’s liquidation preference that entitles them to effectively ALL of the company’s net worth in receivership.

TSY acquired their liquidation preference with the SPSPA. The value started at $1 billion and increased dollar-for-dollar with Fannie’s draws. It currently sits on Fannie’s Balance Sheet under Stockholder’s Equity at $117.2 billion. All junior preferred has a par value of $19.1 billion. It, too, sits on the Balance Sheet in Stockholder’s Equity and is entitled to be paid out before common shareholders see a cent. This is where the junior preferred vs common thesis ends.

The problem is, Fannie also has an accumulated equity deficit of $124.6 billion, which leaves net equity at only $6.1 billion (as of 2Q2015). That goes to Govt. In liquidation, there is no money to be paid to either junior preferred for their par value or to common shareholders. Both are both effectively wiped out. This was an intentional design of the SPSPA and, along with the net worth sweep, is one of the reasons Perry and Fairholme are suing the Govt for “takings.” That element of takings is that Govt effectively took all liquidation value from shareholders.

Lamberth ruled that the liquidation preference takings claim isn’t ripe since Fannie is not in receivership. Sweeney is dragging her feet in the Fairholme suit. The design with Govt is to delay and wait for Fannie to post a bad quarter or two, and put it into receivership. Fannie, however, won't be going anywhere if that happens. It will just be reorganized and renamed. The only thing going away are the shareholders, both preferred and common. Fannie is living on borrowed time and the court cases need to progress. Sweeney won’t let this happen, but maybe Delaware will.

Lastly, do your own DD and don’t believe the uninformed BS people post to this board. Start by reading Fannie’s financial statements:

http://www.fanniemae.com/portal/about-us/investor-relations/quarterly-annual-results.html