Fannie Mae 2011 Annual Report Download - page 68

The conservatorship and investment by Treasury have had, and will continue to have, material adverse effects on
our common and preferred shareholders, including the following:
No voting rights during conservatorship. The rights and powers of our shareholders are suspended during the
conservatorship. The conservatorship has no specified termination date. During the conservatorship, our common
shareholders do not have the ability to elect directors or to vote on other matters unless the conservator delegates
this authority to them.
Dividends to common and preferred shareholders, other than to Treasury, have been eliminated. Under the
terms of the senior preferred stock purchase agreement, dividends may not be paid to common or preferred
shareholders (other than on the senior preferred stock) without the consent of Treasury, regardless of whether we
are in conservatorship.
Liquidation preference of senior preferred stock will increase, likely substantially. The senior preferred stock
ranks prior to our common stock and all other series of our preferred stock, as well as any capital stock we issue
in the future, as to both dividends and distributions upon liquidation. Accordingly, if we are liquidated, the senior
preferred stock is entitled to its then-current liquidation preference, plus any accrued but unpaid dividends,
before any distribution is made to the holders of our common stock or other preferred stock. The liquidation
preference on the senior preferred stock will increase to $117.1 billion when Treasury provides the additional
$4.6 billion FHFA is requesting on our behalf. The liquidation preference could increase substantially as we draw
on Treasury’s funding commitment, if we do not pay dividends owed on the senior preferred stock or if we do
not pay the quarterly commitment fee under the senior preferred stock purchase agreement. If we are liquidated,
it is unlikely that there would be sufficient funds remaining after payment of amounts to our creditors and to
Treasury as holder of the senior preferred stock to make any distribution to holders of our common stock and
other preferred stock.
Exercise of the Treasury warrant would substantially dilute investment of current shareholders. If Treasury
exercises its warrant to purchase shares of our common stock equal to 79.9% of the total number of shares of our
common stock outstanding on a fully diluted basis, the ownership interest in the company of our then existing
common shareholders will be substantially diluted, and we would thereafter have a controlling shareholder.
No longer managed for the benefit of shareholders. Because we are in conservatorship, we are no longer
managed with a strategy to maximize shareholder returns.
For additional description of the restrictions on us and the risks to our shareholders, see “Business—
Conservatorship and Treasury Agreements.”
We may undertake efforts that adversely affect our business, results of operations, financial condition,
liquidity and net worth.
In conservatorship our business is no longer managed with a strategy to maximize shareholder returns while
fulfilling our mission. Our conservator has directed us to focus primarily on minimizing our credit losses from
delinquent mortgages and providing assistance to struggling homeowners to help them remain in their homes.
More recently, our conservator has announced two additional strategic goals for the next phase of our
conservatorship—building a new infrastructure for the secondary mortgage market and gradually contracting our
dominant presence in the marketplace while simplifying and shrinking our operations. In pursuit of these or other
goals prescribed by our conservator, we may take a variety of actions that could adversely affect our economic
returns, possibly significantly, such as encouraging increased competition in our markets; reducing the risk-based
fees we charge for certain types of loans; modifying loans to defer principal, lower the interest rate or extend the
maturity; or engaging in principal reduction. We are already taking some of these actions. These activities may
have short- and long-term adverse effects on our business, results of operations, financial condition, liquidity and
net worth.
Other agencies of the U.S. government or Congress also may ask us to undertake significant efforts to support the
housing and mortgage markets, as well as struggling homeowners. They may also ask us to take actions in
-63-