再谈FRE/FNM common shares

lite1067

For one more time, and the last time, I will talk about the perspective for common shares of FRE/FNM.

It seems FRE/FNM is a very popular target for many HTers. But IMHO, they are really bad for long term holding.  FRE/FNM right now is the play field of gambler and swing trader.

Just a friendly reminder, theoretically only if the future earnings of FRE/FNM, after the following deduction, is still positive, the common share holders of FRE/FNM can receive any remaining cashflows.

1) loss due to the guarantee on the $5-6T MBS

2) loss due to the default on the MBS holdings.

3) all the interests and principals paid back to the senior and subordinate debt holders

4) 10% dividends and principal of the new issued preferred shares from treasury can be fully paid back. note that 10% is almost the yield of High Yield corporate bonds.

5) original preferred shares to be paid back at par

6) the suspended dividends of original preferred to be paid back (I didn't see anyone else point out this, but according to priority embedded in the capital structure, dividends of preferred shares could be suspended but have to be paid back first before any dividends could be paid to common share holders).

The chance of rewarding is very small and the rewards is fairly limited. not a good deal at all. Buying common shares or even the preferred of FRE/FNM is equivalent to buying a long term leap call. With the high implied volatility, the call is very expensive and not really a good investment.

hellofriend

people like gambling.

lite1067

原帖由 hellofriend 于 2008-9-9 23:38 发表 people like gambling.

then go directly to a casino to play roulette ;-)

polopolo

One correction, the missed P.S dividend may not need to be paid back. Not that is much of a relief.

aght

嗯。。。有道理。。。顶！