The continued flow of data supporting the strong and continuing housing recovery can only be good news for the GSEs and for the U.S. government. As part of its bailout agreements with Fannie and Freddie, the GSEs granted the government warrants to purchase just under 80% of the common shares of the two GSEs at a strike price of $0.00001 per share.
Government-Held Preferred SharesThe U.S. Treasury holds $117.1 billion in Fannie Mae senior preferred shares and $72.3 billion in Freddie Mac senior preferred shares, in lieu of bailout funds provided to both companies. Fannie Mae announced on May 9 that it would pay the Treasury a second-quarter dividend of $59.5 billion, after the GSE determined it could recapture most of its valuation allowance for deferred tax assets (DTA) at the end of the first quarter,. Freddie Mac announced on May 8 that it would pay a dividend of $7 billion to the Treasury in June. Following the announced June dividend payments from Fannie Mae and Freddie Mac, the government will have received dividends totaling $131.6 billion on its combined GSE preferred investment of $189.4 billion.
Junior PreferredDividend payments on junior preferred shares of Fannie Mae and Freddie Mac were suspended when the GSEs were taken under conservatorship in September 2008, instantly sinking in price to pennies on the dollar, and causing many institutional investors, including scores of community banks, to mark their preferred shares to market and book huge losses. The market action for the junior preferred shares has also been very strong, and this continued on Tuesday. Here are two of our favorite examples: Fannie's preferred series E shares, with a par value of $50.00, were up 43% on Tuesday to close at $20.00, following a 59% increase on Friday. The shares trade under the ticker FNMFM and have risen from 1,150% from $1.60 at the end of 2012. Freddie's preferred series Z shares, with a par value of $25.00, were up 3% to close at $6.69, following an 11% increase on Friday. The shares trade under the ticker FMCKJ and have risen 282% from $1.75 at the end of last year.
-- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn