How confident is the market that Fannie Mae (FNM) is toast? Very confident. Just look at the prices on Fannie Mae’s (FNM) preferred stock. Brett Arends at ROI explains:
Fannie preferred is now changing hands for as little as 44 cents on the dollar. Anyone who thinks investors are being too gloomy about the company’s prospects can find yields of 12%. So much for the endorsement.
There is even some more exciting “mandatory convertible” paper, of a kind of do-or-die nature, that now yields 30%. …Fannie Mae has no fewer than 17 classes of this paper outstanding. Most of it can be bought through a broker like common stock.
The company pays 72.63 cents a quarter to holders of the 5.81% Non-Cumulative Preferred Series H. That totals $2.90 a year in dividends. Stock price at Friday’s close: $25.54. An 11.3% yield.
And it will pay 51.563 cents a quarter, or $2.06 a year, to holders of the 8.25% Non-Cumulative Preferred, Series T. That stock has a face value of $25, but it fell another 58 cents to $17.10.
Each of the preferreds has different terms, kickers and caveats. Certain hedge funds are doubtless combing them for opportunities. There are risks aplenty. Preferreds issued in May and trading under the ticker FHA have already plunged from the $50 offer price to just $22.
Ready to roll the dice? All it takes is faith in the continued solvency of a company with a debt-to-equity ratio of 94 burning about $2 billion in cash per quarter.
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