For example, Fannie's preferred series E (FNMFM) shares, with a par value of $50.00 and a coupon of 5.10%, rose 23% on Tuesday to close at $8.00. The shares were flat in late morning trading on Wednesday.
Freddie Mac's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, rose 15% on Tuesday to close at $3.88. The shares were up 4% in late morning trading on Wednesday, to $4.02.
The Treasury holds a warrant to purchase up to 79.9% of Fannie's common shares, at an exercise price of just $0.00001 per share. That makes a long-term investment in the common shares a rather dubious proposition.
But for the junior preferred shares, the story is different. For one thing, the government is looking at a potential political time bomb, as it feasts on Fannie Mae's dividends. Numerous voices will be asking why the Treasury doesn't want its preferred investment -- the taxpayer bailout -- to be repaid. Fannie is now a profitable company with $3.2 trillion in total assets as of Dec. 31. It's not simply going to disappear, despite what we hear from various politicians.There is also a possibility of the junior preferred shareholders filing a lawsuit against the government. Australian hedge fund manager John Hempton, said in an interview with TheStreet on March 21 that the government's windfall on Fannie and Freddie could cause an "enterprising lawyer