Replies to post #352557 on Fannie Mae-No Politics (FNMA)

[rekcusdo]

"The point I keep trying to make is that preferred shares share the same fate as common share prices, other than smoothing out the volatility for risk that reposes in commons. The preferreds just have a safety net in liquidation preference."

True that the preferred have a safety net in liquidation....though I doubt it would come to fruition. If this actually entered liquidation, the government has made it very clear that the loan has not yet been paid back. They would likely claim themselves as a creditor and creditors get paid before preferred.

False that the commons and preferred share the same fate. Pre-Crisis pps held common at 80 dollars and preferred at 30 dollars. That 2.5:1 ratio has stayed fairly true even post-crisis. Therefore, 10 dollars buys me 10 shares of common to every 4 shares of preferred it buys me....and earns me 2.5 dollars on each dollar for every dollar that preferred earns.

Clearly, commons have more upside...and the liquidation preference would only be helpful if we liquidate (unlikely) and the treasury doesn't claim as a creditor (unlikely).

[Zmarzz]

Isn't it customary in the United States for preferred stocks to be given almost as much deference or preferential treatment as bonds?
If something goes wrong here with FnF, I can easily imagine that the common shares would be wiped out, but almost certainly some consideration would be given to the owners of the preferred shares.
Perhaps not the original cost of $25/share, but still a significant fraction.