Fannie Mae-No Politics (FNMA)

[contrarian bull]

FnF senior preferreds are equity and not a liability, forgiving them would reduce equity (senior preferred balance) by the same amount it increases equity (retained earnings). The net effect is no change on net worth because total equity remains unchanged.

This is the key difference between (incorrectly) viewing the senior preferreds as liabilities. It absolutely matters that they are equity.

AAARGH! I just can't leave this standing... I will beat this dead horse one more time.

Yes - those preferred shares are EQUITY that f&f loaned to someone else (Treasury) in exchange for cash (the draws).

I'm sorry you have such a misunderstanding about this. I suppose it's partially because the senior preferred (as well as junior preferred) is under a heading of "Liabilities and Equity". That would "equity" could trick you into thinking it's a positive thing for f&f. It's not. It's an equity stake in f&f that f&f sold to an outside investor. It is absolutely, positively a liability.

Yes - it's not a "loan" but it is an investment. And one day treasury will want to get paid back for that investment. Just like junior preferred stocks are not a loan, but they kind of act like loans as far as the balance sheet goes.

Look at that balance sheet again and this time imagine that the heading says "Liabilities and Debts". And imagine that instead of a line item of "stockholder's equity" it says "stockholder loans to us". Then maybe it will make more sense?

Using the word 'equity' is long-standing tradition, but can confuse some.

This really is an important point.