Fannie Mae-No Politics (FNMA)

[bradford86]

Junior preferred shareholders are in line to receive the
dividends associated with their shares before holders of
new or existing common shares. Thus, they might refuse to allow the GSEs to retire their claims on the GSEs’
assets and income at less than the face value of their
shares in the lead-up to a sale of new common stock.
That refusal would reduce the value of the new common
shares, making recapitalization more difficult. Even
though the Treasury’s preferred shares have seniority over
the preconservatorship preferred shares owned by investors, the Treasury would have an incentive to make an
arrangement that took into account its ownership stake
in the GSEs’ common stock.

that arrangement is with preferred.