Fannie Mae (FNMA)

[kthomp19]

Why do preferred have to convert to common as part of settlement?

It's a costless (to the government and FnF) way to buy them off.

Stopping NWS and paying out par or slightly above par is probably going to happen.

What do you mean by "paying out"? If it means redeeming the prefs at par, that would cost FnF $33B that they could otherwise keep, and use towards capital requirements, by just leaving the prefs alone.

Wouldn't new lawsuits come in saying gov't gave mob style deal to hedge funds/pref as part of the settlement(i.e. 6 common shares for 1 pref)?

Citi prefs got a 7:1 conversion offer, when the market was at around 2.5:1 the day before. I am not aware of any lawsuits filed over that, so I would not expect any (eventually successful) lawsuits over this conversion either.

A "mob style" deal would be more like a 20:1 ratio. 6:1 isn't even double today's ratio of 3.6:1.

Which law would the conversion break? It certainly isn't the Fifth Amendment of the Constitution because none of the property involved is for public use.