Fannie Mae 2010 Annual Report Download - page 149

based capital or subordinated debt levels during the conservatorship. For information on our minimum capital
requirements see “Note 17, Regulatory Capital Requirements.”
Capital Activity
Following our entry into conservatorship, FHFA advised us to manage to a positive net worth, which is
represented as the “total deficit” line item in our consolidated balance sheet. Our ability to manage our net
worth continues to be very limited. We are effectively unable to raise equity capital from private sources at
this time and, therefore, are reliant on the senior preferred stock purchase agreement to address any net worth
deficit.
Senior Preferred Stock Purchase Agreement
We have received a total of $87.6 billion from Treasury pursuant to the senior preferred stock purchase
agreement as of December 31, 2010. These funds allowed us to eliminate our net worth deficits as of the end
of each of the eight prior quarters. In February 2011, the Acting Director of FHFA submitted a request for
$2.6 billion from Treasury under the senior preferred stock purchase agreement to eliminate our net worth
deficit as of December 31, 2010, and requested receipt of those funds on or prior to March 31, 2011. Upon
receipt of the requested funds, the aggregate liquidation preference of the senior preferred stock, including the
initial aggregate liquidation preference of $1.0 billion, will equal $91.2 billion. We continue to expect to have
a net worth deficit in future periods and therefore will be required to obtain additional funding from Treasury
pursuant to the senior preferred stock purchase agreement. Treasury’s maximum funding commitment to us
prior to a December 2009 amendment of the senior preferred stock purchase agreement was $200 billion. The
amendment to the agreement stipulates that the cap on Treasury’s funding commitment to us under the senior
preferred stock purchase agreement will increase as necessary to accommodate any net worth deficits for
calendar quarters in 2010 through 2012. For any net worth deficits as of December 31, 2012, Treasury’s
remaining funding commitment will be $124.8 billion ($200 billion less $75.2 billion cumulatively drawn
through March 31, 2010) less the smaller of either (a) our positive net worth as of December 31, 2012 or
(b) our cumulative draws from Treasury for the calendar quarters in 2010 through 2012.
Dividends
The conservator announced in September, 2008 that we would not pay any dividends on the common stock or
on any series of outstanding preferred stock. In addition, the senior preferred stock purchase agreement
prohibits us from declaring or paying any dividends on Fannie Mae equity securities (other than the senior
preferred stock) without the prior written consent of Treasury. Dividends on our outstanding preferred stock
(other than the senior preferred stock) are non-cumulative; therefore, holders of this preferred stock are not
entitled to receive any forgone dividends in the future.
Holders of the senior preferred stock are entitled to receive, when, as and if declared by our Board of
Directors, cumulative quarterly cash dividends at the annual rate of 10% per year on the then-current
liquidation preference of the senior preferred stock. Treasury is the current holder of our senior preferred
stock. As conservator and under our charter, FHFA has authority to declare and approve dividends on the
senior preferred stock. If at any time we do not pay cash dividends on the senior preferred stock when they
are due, then immediately following the period we did not pay dividends and for all dividend periods
thereafter until the dividend period following the date on which we have paid in cash full cumulative
dividends (including any unpaid dividends added to the liquidation preference), the dividend rate will be 12%
per year. Dividends on the senior preferred stock that are not paid in cash for any dividend period will accrue
and be added to the liquidation preference of the senior preferred stock.
Our fourth quarter dividend of $2.2 billion was declared by the conservator and paid by us on December 31,
2010. Upon receipt of additional funds from Treasury in March 2011, which FHFA requested on our behalf in
February 2011, the annualized dividend on the senior preferred stock will be $9.1 billion based on the 10%
dividend rate. The level of dividends on the senior preferred stock will increase in future periods if, as we
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