On conversion of JPS to common shares... my opinion is different.
All stocks are valued on the balance sheet at par value. With FNMA, that is $.01. Paid in capital from common stocks and preferred stocks authorized and sold are two of the four components of core capital which is the primary issue in recapitalizing Fannie Mae and making it eligible for release from conservatorship.
When preferred stock is sold, the proceeds go into cash. Fair value accounting, as adopted by Fannie Mae, requires that a re-valuation of what went into cash gets removed from cash.
The accounting for a mandatory conversion from a non-convertible preferred stock to common shares is different than the accounting for convertible preferred shares whose par value is treated differently and involves a "Paid In Capital" entry at the time of conversion.
Either way, the conversion in the case of Fannie as proposed by Moelis has a hugely deteriorating impact on core capital... which is the key challenge in recap and release.
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