I'm wondering if these things will essentially end up being worthless. I held on to them instead of selling for a tax loss at the end of the year. Not sure that was a wise decision, but I figured the possible long term gain outweighed the definite small short term one.
Now it keeps going down and down, and is looking more and more like this thing is going to get down to the quarter a share territory.
I'm guessing that either of three things is going to happen:
A) FNM becomes 100% nationalized, and we lose any value that these things might still be considered to have
B) FNM is 100% privatized, and we either end up with some sort of common stock eventually being swapped for what we have (or simply have our preferred stock declared worthless)
C) It remains some sort of hybrid animal, but with a greatly diminished role on the national stage. In this case, FNM might become profitable again, but be a much smaller operation
Any thoughts on which of these might be the end result, or do you see another final solution?
Couple of questions: 1 Does FNM have to pay preferred dividends first before paying any dividends on FNM common? 2. What is the probability of redemption at par? 3. What are the chances of this going down to zero? Can these be wiped out? 4. What are the possibilities of converting these into Common? Thanks in advance.
1 Does FNM have to pay preferred dividends first before paying any dividends on FNM common?
Yes. The common stock is hopelessly overvalued. This is because the stupid guys only know common stock.
2. What is the probability of redemption at par?
Zero until at least 2020. Even if eventually dividends are resumed, it is hard to imagine that the preferreds are redeemed.
3. What are the chances of this going down to zero? Can these be wiped out?
The current price should tell you that there is a big chance that even the preferred are wiped out. As it stands, they effectively are wiped out now. There are two main hopes for the preferred: (a) the whole deal where the government gets senior preferred in exchange of providing the necessary financing is redone, with the government instead receiving instruments that are on par with the public preferred or even behind them, (b) Fannie suddenly starting to make huge profits again, them being able to reverse all the writedowns they made, because suddenly all the debt they hold is being serviced.
Under NORMAL circumstances, the preferred will not receive dividends anymore for many years to come.
4. What are the possibilities of converting these into Common?
This would be another model. I do not believe this will happen unless also the senior preferred of the government is converted into common. If THAT happens however, the preferred might be a reasonable buy at current prices.