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Federal National Mortgage Association Message Board

  • fuzzhead72 fuzzhead72 Sep 6, 2008 12:04 PM Flag

    preferred stock value = $0 come Monday?

    After jumping in to the common stock a couple of weeks ago (and back out after a single 12% day, due to the risk), I purchased shares in the preferred stock of Fannie Mae after:

    I) reading over the financials, and deciding that Fannie was more stable than Freddie, and therefore less likely to merit government involvement

    II) reading several articles online that explained it was very unlikely that the preferred stock would be greatly interfered with, since many banks hold loads of this, and it could touch off a new wave of bank failures. (exactly what the government is trying to avoid)

    I can't seem to find any new information, so I was wondering if there is any historical precedent for what is likely to happen here?

    I.E. - do you think there is more than a 50% chance that these shares will be worthless when Monday rolls around?

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    • I have the preferred t myself. I have combed over numerous articles and there is nothing conclusive as of yet. Early indications appeared the Treasury would spare the preferred shareholders, however recent articles and comments by Barney Frank would suggest the opposite. Sorry but its anybodies guess at this point.

    • See Barrons (page m-9) See bloomberg last PM. The pref. will be supported as per the above----Monday morning---substantial rally in the pref. sector and a possible decline in the common. Good Luck.

      • 1 Reply to peterman888
      • I think the jury is still out; I have seen comments both ways. Here are the Barron's comments:

        "The Treasury backstop to reassure Fannie and Freddie debt holders will certainly involve government investment in their equity -- if not common, then convertible preferred shares. In either instance, the current common holders' stake will be seriously diluted, perhaps to nil. Reflecting that possibility, Fannie and Freddie common plunged about 20% in after-hours trading Friday after the story broke.

        The key question will be the fate of the holders of the $36 billion of outstanding preferreds. In a typical recapitalization, preferreds, which are equity, receive little if anything.

        But Fannie and Freddie preferreds have bounced in the past couple of weeks, reflecting the notion these securities won't be a total wipeout. The thinking is that many Fannie and Freddie preferred holders are banks, many of which already are reeling from the effects of the mortgage debacle. Moreover, the overall preferred market is being counted on as a source of additional capital for financial firms, which need the money to fill the hole left by mortgage losses."

    • yes, 1984 FDIC took Continental, stock holders were left with nothing,pref.stock was saved.