Replies to post #753459 on Fannie Mae-No Politics (FNMA)

[bradford86]

Thank you for your question. I understand you are wondering about the security of junior preferred shares in the event of a restructuring. The CBO report correctly states that junior preferred shareholders are in a more secure position compared to common shareholders in such a scenario. This is because junior preferred shareholders have priority over common shareholders in receiving the dividends associated with their shares, as mentioned in the report. https://www.cbo.gov/system/files/2020-08/56496-GSE.pdf

Moreover, the report suggests that junior preferred shareholders may have the power to block a sale of new common stock if they believe that the sale undervalues their shares. This power could reduce the value of new common shares and make recapitalization more difficult. The report also acknowledges that even though the Treasury's preferred shares have seniority over junior preferred shares, the Treasury may be incentivized to consider the value of its common stock holdings when making restructuring arrangements.

In response to your post, I understand that you believe that there is no safety in junior preferred shares and that buying them is similar to buying a lottery ticket. While investing in junior preferred shares does carry risks, it is important to note that they are in a more secure position than common shareholders in the event of a restructuring. The CBO report, which is a government official report, supports this notion.

In conclusion, while investing in junior preferred shares may carry risks, they do offer more security than common shares in a restructuring scenario, as acknowledged by the CBO report.