Fannie Mae-No Politics (FNMA)

[JOoa0ky]

Reality says that the common shares will have limited upside as long as they don't pay dividends. They must pay preferred dividends before commons can get any. Most all juniors are at much higher than current interest rates. My FMCKJ pay a minimum of 7.875%. They will want to liquidate those ASAP and replace them with new preferred shares at much lower rates.

But they can only pay off the juniors on (in the case of these) the 5 year anniversary. For FMCKJ the next redemption date is December 31, 2022. If they want to offer dividends and not pay that high rate they will have to get junior preferred to agree to a buyout. Probably something like face value plus 1-3 years of interest depending on each series' redemption date.

The board's hands will be fairly tied until the Preferred are offered something. So that first board meeting - the first order of business will be to get a vote from junior preferred shareholders.

Or they do nothing and they can't do any capital raises - which actually would be good for commons with the NWS ended and seniors deemed paid off. Just stay in conservatorship until they save up enough profits. No dilution to commons - stock price rises $10/year for a few years.

A buyout will be counter productive to recapitalizing. A cheaper way to get the prefs out of the way is through conversion. Due to the leverage FMCKJ has from the redemption date, they'll probably be offered a higher conversion ratio but thats about it.

FHFA still has the upper hand. They can just delay exit from conservatorship to 2027 as a bargaining chip to get everyone to convert if they have to. Sit at "par" but no divs for another 7 years.

FMCKJ holders: "You can't call us until 2027."
FHFA: "Ok, we will wait if you don't convert."