If you really want to be realistic you may want to read thoroughly the Jr. preferred prospectuses. In them it is stated the shares have risks: other securities could be issued with seniority (it happened), dividends could be suspended without accretion (it happened) and partial redemption could happen (not yet). The partial redemption is particularly risky because the details explain that this partial redemption could be set in price or classes or dates or all of the above. There is also a provision for termination of the companies where the par value is set at $1. So not only this value represents "core capital" but also is used for redeeming them if there is, say, a receivership in the cards. The 85% of Milstein is also worrisome. Since the 79.9% limit meant not bringing GSEs within the government balance sheet Milstein is -for some reason- assuming the government will cross this line and make them part of their books. Or terminate that restriction opening the doors. Is he implying a receivership before any restructuring/capitalization/privatization? Unfortunately, there is no clarity.
But I am afraid that the perception that our shares are "special" because they are *preferred shares* may not be so once you consider the provisions set in the prospectuses. I am sure investors read those as default provisions and -like you- thought the unthinkable was never going to occur. Yet, everyone got shafted... with no recourse. It may seem unfair. Even evil. But Treasury has no reason to feel any guilt. Their "shaft" was part of the prospectuses and was used accordingly. The only two attributes that are helpful to us -my humble layman person writes- are that they are perpetual and that any change to the provisions requires 2/3rd of the votes. But we all know how clever lawyers can be. If not, take a look at what just happened to preferred holders in EMMS due to Indiana specific regulations.
I am not trying to be negative. I am sitting on a pile of shares but I can't help it to be nervous after the most recent Treasury move. And since then, nothing has happened that could appease this fear. Nobody brought up any issues concerning us.
What seems obvious is that both companies will come back as viable businesses. That they both will look like offering a useful service to Americans and that -well run- there are few reasons to terminate them but making them compete with new entrants in a multi-participants market. It is also obvious they will continue to securitize mortgages and their platforms -perhaps unified- will persist. What is not clear yet is, are we going to be completely and absolutely shafted or will someone throw us a bone?
