Fannie Mae-No Politics (FNMA)

[kthomp19]

I think the discussion is important, but it's a selfish reason: I own some of each. For example, if someone truly believes that $10 per share for the commons is a best-case scenario, that person should be entirely in the junior preferreds.

In fact many of the $50 stated value junior preferreds trade for around $12, so to consider the commons one should believe that the expected value of the commons is at least $17. Even then the prospect of extreme variance generally requires a risk premium, so $25 is a more plausible average needed to pick the commons over the junior preferreds.

Of course all this assumes that the junior preferreds will get par (or near it; series like FNMAM traded around $44 pre-conservatorship) with no deviation. Since no mandatory conversion is possible, I don't currently see any scenarios that involve releasing the companies from conservatorship but the junior preferreds not returning to those levels.