FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[This2ShallPass]

I'm sure someone here has attempted to value Fannie and Freddie. I would appreciate it if you could share or point me to the post.

 

Pulte said today it'll be between $500-700B.

 

[COBFInfinity]

How are people here choosing which JPS to own? Here are some thoughts and questions.

 

While the market has typically had a modest degree of efficiency with respect to the JPS throughout conservatorship, for the past few months there has been a much stronger sorting in favor of: higher dividend rate, higher trading liquidity, and a preference for Fannie over Freddie. It seems reasonable that the higher coupon will matter, even if there is an exchange offer rather than dividend resumption. Personally, I don't pay up for liquidity - if they have a comparable yield, give me the cheaper shares! I am also not willing to pay much of a premium for Fannie over Freddie. I'm not 100% sure, but I feel like it was an idea floated by Bill Ackman around the turn of the year that Fannie may/should exit conservatorship first, then Freddie later. That is certainly possible, but it's unclear that is actually being planned, so not something I want to pay very much to bet on. And the market wasn't really pricing anything like that in prior to Ackman bringing it up.

 

So the net result is that I am mostly in Freddie $50-par issues, with a mix of lower fixed rates and resets.

 

The one big question I still have is what the lower-rate reset issues are worth, relative to the lower fixed rate dividend issues. For example, some Freddie JPS have dividend rates of "5-Year Treasury" and "2-Year Treasury + 0.20%", among others. I have seen some misunderstandings elsewhere implying that these have very little upside because the current yields are well below the fixed coupons; e.g., they argue that the 2-Year Treasury yield is just 3.5% today, while the lowest yield of any Freddie fixed rates is 5.0% and therefore, the reset issue is worth much less. Of course, that is not how floating rate/reset securities are priced as they don't have the same duration and the idea is that, setting aside credit risk, they are expected to trade near par in different interest rate regimes.

 

However, that doesn't mean that these reset JPS would trade at the same market price as that 5.0% coupon today. For one thing, the preferred stock market has changed. The Freddie issues I'm referring to were issued no later than 2001, before the Fed Funds rate worked it's way down to 1% and lower. Had they been issued at a later date, they would have had required a floor coupon of probably 3-4%. So in the modern preferred market, these older reset JPS aren't as competitive and therefore should trade at a discount of some kind to low fixed rate issues.

 

But how much should that discount be? I don't see any comparables in the preferred stock universe right now because a) most preferreds in the financial sector of this vintage or older were called during the ZIRP years and b) there don't appear to be many, if any, that are tied to Treasury rates. So does anyone have relevant comparables, perhaps in corporate fixed income, that show relative pricing between a single issuer's long-dated fixed and reset bonds? Are there such matches out there anywhere?

 

My general sense is that the market is pricing most of these reset issues pretty rationally at about a $2 discount compared to the 5.0% or so dividend series', but it would be interesting if there was some relevant comparables out there.

[orthopa]

On 9/2/2025 at 10:10 AM, fakemoneyguy said:

@orthopa you think it is that simple? If Paulson dies tomorrow (crystallizes "key man" risk), are you a seller?

 

https://wtop.com/inauguration/2025/01/billionaires-tech-titans-presidents-a-guide-to-who-stood-where-at-trumps-inauguration/

Paulson sat next to Adelson and Wiles in the inauguration ceremony (inner circle seating) so it might be

 

https://www.wsj.com/politics/trump-inauguration-who-attended-seating-chart-47cb48bf?mod=e2tw

But Tim Cook sat inner circle at Trump's inauguration too. AAPL's supply chain is Chinese, and Trump has been decoupling from Chinese supply chains since he was elected. 

 

 

 

I do. For whatever gain Trump would get out of this Biden would have also. Why didnt his admin do it? The path of least resistance with these investments has been the status quo. 

 

If Paulson dies today yes it still goes through. Cant stop the train now. If Paulson dies in late 2023 or Summer of 2024 Im out of the trade completely. 

 

Its unknown what Paulson holds but its safe to say "at least" Billions of face value of preferred. How does Trump benefit from this when the PSPA is restructured and the JPS fate is determined. Legacy? Maybe...but I would take Billions over legacy any day. 

[sleepydragon]

19 hours ago, orthopa said:

 

 

I do. For whatever gain Trump would get out of this Biden would have also. Why didnt his admin do it? The path of least resistance with these investments has been the status quo. 

 

If Paulson dies today yes it still goes through. Cant stop the train now. If Paulson dies in late 2023 or Summer of 2024 Im out of the trade completely. 

 

Its unknown what Paulson holds but its safe to say "at least" Billions of face value of preferred. How does Trump benefit from this when the PSPA is restructured and the JPS fate is determined. Legacy? Maybe...but I would take Billions over legacy any day. 

i think trump could benefit from this because the proceeds can to the sovereign fund which will buy cryptos. It also make reduced debt on govt balance sheet so he can push more tax cut 

[TwoCitiesCapital]

22 hours ago, sleepydragon said:

i think trump could benefit from this because the proceeds can to the sovereign fund which will buy cryptos. It also make reduced debt on govt balance sheet so he can push more tax cut 

 

Any IPO proceeds are inconsequential to the US budget/deficit in any given year. Particularly if they're only IPO'ing a small percentage at a time which is the only plan currently floated publicly. 

 

[DRValue]

With one party threatening to punch the other in the face, it'd be hard to argue they're self-dealing in that negotiation. Optics

[DRValue]

So weird to me how Common holders live rent free in pref holders heads on FinTwit

[Mephistopheles]

https://www.wsj.com/finance/banking/fannie-freddie-ipo-big-banks-6d8884aa?mod=hp_lead_pos2

 

Looks like it is really happening?

[TwoCitiesCapital]

I don't really see anything new mentioned in the article - most are references to discussions this past Summer. 

 

The tid bit I found interesting was this: 

 

"Midway through the presentation, Trump invited in a group of athletes from his council on sports and fitness. Solomon continued speaking as former professional wrestler Paul “Triple H” Levesque and golfer Bryson DeChambeau looked on."

 

You know - so Trump is taking it so seriously that he involved Triple H on the discussions with Goldman's David Solomon

[Mephistopheles]

No, nothing new, but it just shows consistency. Obviously they've been talking about IPO for some time, there was that breaking news couple months ago that they're doing by year end. But now you have all the bankers meeting with the admin and fighting for lead left/right...it just further shows that Trump is serious this time.

 

Best indicator is him posting an AI pic of himself ringing in the IPO on Truth Social. 

[fakemoneyguy]

McKernan was confirmed yesterday as Under Secretary for Domestic Finance at Treasury: https://home.treasury.gov/news/press-releases/sb0274. Another leg of the parlay de-risked.

[This2ShallPass]

This feels like a binary event now, will the govt forgive the SPS or not? It seems like they're gung ho about the IPO and more likely to consider them paid. Who will challenge that in the courts?

 

Are the share counts below in the ballpark? 6.4B shares with JPS converting to common and another 5B if 50% of SPS converts?

 

https://seekingalpha.com/article/4828219-fannie-mae-price-of-scarcity-valuing-unique-business
 

In this scenario, we assume 50% of Treasury’s $120B SPS, or $60B, converts to common stock at around $12 per share, similar to the AIG conversion. This would create about 5 billion new shares, increasing the total to roughly 11.4 billion when added to the existing 6.4 billion.

[COBFInfinity]

2 hours ago, This2ShallPass said:

This feels like a binary event now, will the govt forgive the SPS or not? It seems like they're gung ho about the IPO and more likely to consider them paid. Who will challenge that in the courts?

 

Are the share counts below in the ballpark? 6.4B shares with JPS converting to common and another 5B if 50% of SPS converts?

 

https://seekingalpha.com/article/4828219-fannie-mae-price-of-scarcity-valuing-unique-business
 

In this scenario, we assume 50% of Treasury’s $120B SPS, or $60B, converts to common stock at around $12 per share, similar to the AIG conversion. This would create about 5 billion new shares, increasing the total to roughly 11.4 billion when added to the existing 6.4 billion.

It's not binary at all. There is a huge range of outcomes where Treasury could legally end up with any common ownership percentage between 79.9 -99.9% that it chooses. It might seem binary if you are on other discussion boards where, based on no evidence that I can see other than "Ackman said so," or "Trump loves us," current common holders just assume that Treasury is going to write off most or all of the SPS for no value. Some even say the warrants get written off, too! Whereas investors who don't agree with that assumption, or at least don't want to take the risk behind that assumption, only hold JPS. So it seems like there are only two paths, but that's not at all the case. What there SHOULD be is discussion among common holders about how much dilution there will be, but instead all I see is "Will we get a 5x, 10x, or 50x?" I'm honestly baffled by the whole thing - yeah, I only own JPS.

 

Smaller side note as it less materially changes outcome for common - it's unclear if JPS will get a conversion offer into common. Lutnick recently talked about wanting to get a "mark-to-market" valuation and someone else made the point that a JPS conversion just leads to a huge number of motivated sellers of the common that would drive the market price down. So, even though a sizeable portion of the preferred are at above-market rates, they may just leave them outstanding for a while.

[This2ShallPass]

 

1 hour ago, COBFInfinity said:

current common holders just assume that Treasury is going to write off most or all of the SPS for no value.

 

That is a binary event right - will they write-off or no? If Trump / admin decides to do it (because they want MAGA to be the biggest IPO or whatever), who will challenge them? That's not something that can go to the courts.

 

Sure, they can say they will write-off X% and then it's a spectrum with more than 2 choices. 

 

1 hour ago, COBFInfinity said:

it's unclear if JPS will get a conversion offer into common.

I feel this has to happen or they're getting a few lawsuits. That will delay the IPO plans. If the ownership structure becomes clear (which has to happen for an IPO), there will lot of buyer interest to absorb the JPS selling. These two are very valuable companies.

 

Do the outstanding share numbers look right to you, 6.4B shares with JPS getting converted at par? 5B more w 50% SPS conversion?

 

 

[COBFInfinity]

9 hours ago, This2ShallPass said:

 

 

That is a binary event right - will they write-off or no? If Trump / admin decides to do it (because they want MAGA to be the biggest IPO or whatever), who will challenge them? That's not something that can go to the courts.

 

Sure, they can say they will write-off X% and then it's a spectrum with more than 2 choices. 

 

I feel this has to happen or they're getting a few lawsuits. That will delay the IPO plans. If the ownership structure becomes clear (which has to happen for an IPO), there will lot of buyer interest to absorb the JPS selling. These two are very valuable companies.

 

Do the outstanding share numbers look right to you, 6.4B shares with JPS getting converted at par? 5B more w 50% SPS conversion?

 

 

Wow. No, "writing off" SPS is not a binary event at all. It matters very much how much is given up by Treasury. One end of the spectrum ends with common shares at $0.01 and the other end at, I don't know, $100 (I haven't bothered with the math of things that aren't going to happen).

 

Not sure they care about lawsuits. If JPS dividends get turned back on, the largest issues will trade at or above par. You think the holders are going to start up a 5+year lawsuit, or just sell and walk away with massive gains? I kinda think they'll opt for the latter.

[Mephistopheles]

 

MAGA!!!!

[COBFInfinity]

1 hour ago, Mephistopheles said:

 

MAGA!!!!

Quite a bit more intriguing is that Pulte tweeted this message within the last hour: "IMPORTANT FOR ANYONE INTERESTED IN Fannie Mae. Please read the full risk sections that Fannie Mae has listed in their 10-K."

 

I'm not actually going to dig through the 10-K, but it seems very likely that he is calling attention to the fact that Treasury owns the whole company and shareholders could get massively diluted. If investors respond logically tomorrow, I think the commons should take a notable dip.

 

From the bigger picture, it seems like some form of restructuring plan progress behind the scenes for him to want to put out a vague CYA after he's pumped up the company's values so much.

[Sweet]

1 hour ago, COBFInfinity said:

Quite a bit more intriguing is that Pulte tweeted this message within the last hour: "IMPORTANT FOR ANYONE INTERESTED IN Fannie Mae. Please read the full risk sections that Fannie Mae has listed in their 10-K."

 

I'm not actually going to dig through the 10-K, but it seems very likely that he is calling attention to the fact that Treasury owns the whole company and shareholders could get massively diluted. If investors respond logically tomorrow, I think the commons should take a notable dip.

 

From the bigger picture, it seems like some form of restructuring plan progress behind the scenes for him to want to put out a vague CYA after he's pumped up the company's values so much.

No idea what Pulte is suggesting.  
 

However I flicked through the 10-K, and it makes clear that common and preferred could get wiped out on conservativeship exit.

 

I’ve always been of the view that nothing here is safe.  I’ve said before, after being in an out of this POS many times, that is rather wait for IPO and risk not making any gains than risk losing it all.

[This2ShallPass]

On 10/10/2025 at 5:42 AM, COBFInfinity said:

One end of the spectrum ends with common shares at $0.01 and the other end at, I don't know, $100

Yes, that's technically correct but not pragmatic. The big decision is are they going to write-off SPS or not? If no, common is doomed. If yes, then we have to look at scenarios of 25%, 50% or higher write-offs. No point wondering if they will write-off 5 or 10% as they are all immaterial.

 

Pulte's tweet today seems to throw cold water. He only mentioned Fannie not Freddie which is odd.

 

Anyways, without worrying about what the govt will do, better to come up with a total valuation for these entities (not per share). So we can quickly react once we have clarity on SPS. 

 

Historical multiples before conservatorship is ~12X P/E and 4x P/TBV. Still reasonable?

 

 

Edited October 13, 2025 by This2ShallPass

[Sweet]

Do you guys really think the gov is going to write off the senior preferred?

 

The government wants the money, it’s especially important to trump with the shut down.

 

I could see all shareholders (preferred and common)wiped out.

 

What about Trump’s friends who are invested?  He could give them foreknowledge of their plan so they could quietly exit.

[COBFInfinity]

5 hours ago, Sweet said:

Do you guys really think the gov is going to write off the senior preferred?

 

The government wants the money, it’s especially important to trump with the shut down.

 

I could see all shareholders (preferred and common)wiped out.

 

What about Trump’s friends who are invested?  He could give them foreknowledge of their plan so they could quietly exit.

 

I assume SPS will be converted into a material portion of common shares, resulting in common prices notably lower than where they trade today.

 

I don't see how JPS are wiped out without a receivership. And that is not what is being planned.

[Sweet]

18 minutes ago, COBFInfinity said:

I assume SPS will be converted into a material portion of common shares, resulting in common prices notably lower than where they trade today.

 

I don't see how JPS are wiped out without a receivership. And that is not what is being planned.

 

Why don't you think receivership is on option?  I just don't see any safety anywhere here.

 

With regards to the common, say Fannie is 500 bn company, common currently trade at 14 billion.  Treasury SPS is 80% of ownership through warrants, fully converted that increases share count from 1.16 billion shares to 6 billion.  500 bn / 6 bn = 83 dollars a share.  I know juniors could be converted to, unsure of the par market value of the juniors, but I see plenty of upside for commons.

 

At 250 bn market cap, commons 40 ish.

 

At 100 bn market cap, commons still have upside at 16 ish.

 

What am I missing?

 

Edited October 13, 2025 by Sweet

[COBFInfinity]

29 minutes ago, Sweet said:

 

Why don't you think receivership is on option?  I just don't see any safety anywhere here.

 

With regards to the common, say Fannie is 500 bn company, common currently trade at 14 billion.  Treasury SPS is 80% of ownership through warrants, fully converted that increases share count from 1.16 billion shares to 6 billion.  500 bn / 6 bn = 83 dollars a share.  I know juniors could be converted to, unsure of the par market value of the juniors, but I see plenty of upside for commons.

 

At 250 bn market cap, commons 40 ish.

 

At 100 bn market cap, commons still have upside at 16 ish.

 

What am I missing?

 

Dude, you haven't even researched these companies, have you? The SPS value is IN ADDITION TO the 80% warrants on common. You might want to start looking at that.

[gfp]

6 hours ago, Sweet said:

The government wants the money, it’s especially important to trump with the shut down.

 

Curious what you mean by this

[DocSnowball]

11 hours ago, This2ShallPass said:

Yes, that's technically correct but not pragmatic. The big decision is are they going to write-off SPS or not? If no, common is doomed. If yes, then we have to look at scenarios of 25%, 50% or higher write-offs. No point wondering if they will write-off 5 or 10% as they are all immaterial.

 

Pulte's tweet today seems to throw cold water. He only mentioned Fannie not Freddie which is odd.

 

Anyways, without worrying about what the govt will do, better to come up with a total valuation for these entities (not per share). So we can quickly react once we have clarity on SPS. 

 

Historical multiples before conservatorship is ~12X P/E and 4x P/TBV. Still reasonable?

 

 

Agree. in the same boat - wanting to have clarity on how the entities will come out of current state before reinvesting more. I have a small preferred position but not comfortable taking more risk at this point - not worth the risk/reward at current prices. 

 

There is little doubt Treasury will look to maximize its share, so base case has to be both SPS and 79.9% ownership will come to fruition. Could there be more they want? If they want more, the last Supreme Court ruling gives them the precedent to do whatever they want as long as it is in conjunction with FHFA and to make the companies stay afloat. 

 

Is there any precedent of re-IPO in the past worth studying? Will shares continue to trade openly once there is clarity on path ahead? How will we (public) find out? Assuming the first steps will include new Treasury-FHFA amendment, after which one can act? 

Edited October 13, 2025 by DocSnowball