Fannie Mae-No Politics (FNMA)

[JOoa0ky]

Are you sure about this? I thought the cost basis for exchanged preferred shares was the price of the exchange.

For example, if a $50 series like FNMAM gets exchanged at 90% of par at $4.50 (to become 10 common shares), wouldn't the cost basis of the converted commons be $4.50 per share? I didn't think each individual shareholder's cost basis in their prefs would matter at that point.

I'm not certain of this, if you have a definitive source for this please post it.

That's what I was asking about but as per Nats explanation, that is incorrect. There is no "reset" in cost basis.


Reason I was asking was due to tax consequences. If the cost basis "resets" to the $4.50 in your example. Then each 50JPS is not worth $50... it would actually be worth the equivalent of a $63 pretax security. Well 63$ if it didn't get the 10% haircut. So a little less but still more than 50.

If that was true, the tax treatment of the possible JPS conversion should make every common holder liquidate immediately and swap to JPS...