Replies to post #752007 on Fannie Mae-No Politics (FNMA)

[navycmdr]

.......

New writeup out by Kyle Nisbet from Sayers Research.

https://sayersresearch.files.wordpress.com/2023/04/fannie-mae-total-summary.pdf

[basesloaded]

Sticky

[RickNagra]

Up 70 ticks thanks to junior. Must be his class project for middle school. Need more ticks. Maybe get the lower school kids to chime in.

[955]

Risk.............Risk is our business.

[chessmaster315]

This (article) was written with a "preferred bias", and, therefore is a non starter.
When an "analyst" writes "with a bias", watch out!

The article says,

For common shares there is NO security, endless dilution is a serious risk
a. If the senior preferred stock is converted to common stock, with a current $120b
par value for the pref stock, and $488m $FNMA market cap, it would lead to
common shareholders having only a 0.4% stake in the proforma company.
Especially because many of the largest & most vocal stockholders are preferred
shareholders, the government could be convinced to follow a plan like this.
5. While we view receivership as an unrealistic option, it could wipe out the preferred stock
a. In receivership the main goals are recovering funds for creditors and avoiding
bankruptcy. Many of the usual “shareholder rights” are ignored. I do not foresee
this as a likely outcome, but due to the government’s bi-partisan animosity
towards Fannie & Freddie, it should be considered by all investo

End of article quote.
The underlined portion is "not only" an unsubstantiated/biased opinion, but is "highly unlikely". Let me explain.

The common shareholders own the company, vote for a Board of directors who represent interests of common shareholders, not preferred. Preferred shares are non voting, so a future potenial BOD, elected by common shareholders, need to manage the company in the best interest of common shareholders, not non voting preferreds.

The "dilution" theory, is just that..a theory, mostly conjured up by preferreds wanting to justify their position. Make no mistake. People with billions and billions of dollars, necessary to re capitalize Fannie (aka buy new issue shares) are not chickens, waiting their turn to be turned into Chicken nuggets. Instead, investors hear the screams of others and get out of the (investment line). "If" our government tried to recapitalize fannie "at the expense of dilution of current shareholders" by "butchering" current shareholders, there wont be enough investors left to fund the billions and billions of dollars to recapitalize fannie. The investors will easily see, "gee, if the government can rob current shareholders of dividends, what is to stop the government from also robbing new shareholders?" Ans. Nothing. Thus, investors run, when they see blood in the streets from butchered shareholders.

Secondly "this COMMONS HAVE NO SECURITY", IS AN opinion, which is unsubstantiated, "in particular" in comparison to preferred shares. The government has robbed from both commons and preferreds, so what is going to happen in the future, that commons will be treated any different from preferreds?

Both common and preferred shares are rather risky now..both could go to zero, with unfavorable court rulings and more government theft of dividends.


But, by the own admission of the author, "receivership is unlikely", so both the commons and preferreds are NOT in/near liquidation, thus, the preferreds "liquidation preference" is irrelevant, if you beleive receivership is unlikely (as I do).

As far as dividend preference, the commons win here. Why? Because preferreds are "non cumulative" preferred, so they can, at best, get "one" current dividend preference, not 12 years back dividends. However, common's dividend, is not fixed, but rather declared by a BOD, and if we get our company back, the BOD, motivated because they are elected and fired by common, voting shareholders, will act in the best interests of commons, not preferreds, who dont vote on board members.