First impacts of wiping out the preferred stocks of Fannie & Freddie

E*Trade Financial:
E*Trade Financial declared today during a presentation at Lehman Bros (!!!) that their bottom line will be impacted by a $150 million loss due to Fannie and Freddie preferred shares.

American International Group announced it has exposure to Fannie Mae and Freddie Mac preferred shares between $550 million and $600 million, according to Reuters.

Citigroup Inc. said in a filing with the Securities and Exchange Commission Wednesday that its net exposure to Fannie Mae and Freddie Mac preferred shares had fallen 95%, to about $50 million, from the end of June to Monday as a result of sales, hedges and writedowns.

It said the holdings had resulted in a $450 million quarter-to-date hit but that the final impact for the period could be different.

Wachovia Corp. said Tuesday it had liquidated its $509 million of government-sponsored enterprise preferred stock at a pretax loss of $171 million.

The sales were completed on July 21 - more than a month before the government takeover of Fannie Mae and Freddie Mac - and were part of the Charlotte company's effort to reduce leverage on its balance sheet, Wachovia said.

Gateway Bank:
Gateway, parent company of Gateway Bank & Trust Co., had invested $40 million in Fannie and Freddie stock as of June 30, according to its second-quarter report, released last month. Those investments are now worth $4.2 million based on the closing prices for those preferred shares on Wednesday.

At June 30, 2008, Sovereign had eight securities totaling $622.6 million of perpetual preferred stock of Fannie Mae and Freddie Mac which had an unrealized loss of $34.4 million. The impact of the above actions and concerns in the market place about the future value of the perpetual preferred stock of Fannie Mae and Freddie Mac have caused values for these investments to decrease materially. It is unclear when and if the value of the investments will improve in the future. Given the above developments, Sovereign expects to record a non-cash other-than-temporary impairment on these investments for the quarter ending September 30, 2008.

City National:

City National Corp. has become one of the first Los Angeles bank holding companies to disclose its exposure to Fannie Mae and Freddie Mac in the wake of the mortgage giants’ takeover by federal regulators earlier this week.

The company said in a Thursday regulatory filing that it expects to take a non-cash charge of $12 million to $13 million in the third quarter.

The Beverly Hills parent of City National Bank said its perpetual preferred investments in Fannie Mae and Freddie Mac are included in securities available for sale at a cost of $23.6 million. They account for about 1 percent of its investment portfolio.

City National said it does not hold any common stock or other equity securities issued by Fannie Mae or Freddie Mac.

Old Mutual:

The chief executive of Old Mutual has resigned after the insurance company issued its third profits warning in three months and was forced to write down $135m (£77m) of assets in its US life business.

Jim Sutcliffe resigned after taking "personal responsibility" for troubles in the US business linked to the bail-out of US mortgage giants Fannie Mae and Freddie Mac, a source close to Old Mutual said.

Despite resigning, Mr Sutcliffe will receive a pay-off of £800,000 after offering to serve his one-year notice period. The board offered to pay him in lieu of his notice.

Bank of America:
Moynihan said Bank of America would need to take some marks in its holdings in Fannie Mae and Freddie Mac, which last weekend were taken into government control. He said: "Given the recent action surrounding the GSE's over the weekend, we're also going to have to take a mark this quarter against our preferred holdings in these entities." Bank of America has a notional exposure of less than $500m to the GSE's. Moynihan took over the corporate and investment banking division last October. He was previously president of Bank of America's global wealth and investment management business.

The following examples of financial institutions and their exposure, as disclosed on or about July 20, 2008, should be noted and applied towards any financial security considered for investment.

Company $Exposure Pref. Debt. % of tangible equity
Wells Fargo (WFC) 480m 480m 0 n/a
Fifth Third (FITB) 68m 68m n/a
U.S. Bancorp (USB) 97m 97m 0
BB&T (BBT) 310m 0 310m
Sovereign Bancorp (SOV) 823m n/a 623m
M&T Bank (MTB) 352m 162m 190m
Synovus Financial (SNV) 100m 100m 0
Huntington (HBAN) 350m 0 350m
WestAmerica (WABC) 45m 0 45m
Valley National (VLY) 70m 70m 0
EastWest Bancorp (EWBC) 45m 0 45m
Wilmington Trust (WL) 42m 0 42m

Published on FT Alphaville (click for bigger image, not great quality though)

More is coming, don't forget: $40 billion has been wiped out, with a high yield, it was probably marked at $50 or $60 billion on the balance sheets. The Fed is probably pumping money like crazy into the banks and without our knowledge.

Finally, for the people who like to follow advices given by the idiots on Wall Street, or those who like to simply have a good lough: (ContrarianProfits.com)
Andrew Gordon says preferred shares in Fannie and Freddie still represent some of the best value to be had in the market right now.
This from Andrew in today’s Investor’s Daily Edge:
“Investors have been selling on all this speculation about what the government may do. But the Treasury Department isn’t giving out any details. So that’s all it is. Speculation. But the selling is driving the price down. And that just feeds on itself. Investors see the price dropping and that encourages more selling.”

Richard says, “I’m buying.”
The government won’t let Freddie and Fannie fail. That much is clear. That should have strengthened F&F in the eyes of investors. But it did the opposite. At least at first.

But investors are once again warming up to Freddie and Fannie. They went into the market in the past two weeks and raised a combined three billion dollars from the bonds they issued.

While preferred shareholders are still vulnerable, the basic fact about them is this: they represent a highly protected class of shareholders in a company that has the implicit backing of the U.S. government.
I believe that Wall Street has got this issue wrong.

For gosh sake, Paulson comes from Wall Street. He knows what’s at stake. He’s going to give F&F every chance to get back on their feet. And if he has to act, he will act to save the value of these GSEs – not kill it. If Wall Street wasn’t so quick to scare – God bless them – they’d have figured this out.

With preferred shares you get double-digit interest yield on an investment which also has the backing of the U.S. government – and that backing is much more explicit than it used to be.

Sounds pretty good, doesn’t it? On top of that, you get to buy these shares at over a 50 percent discount.
The risk-reward for preferred shares of F&F beat most anything else available on the market right now. They’re worth looking into.

A few facts: preferred shares are bought and sold on the major exchanges. They’re usually issued at $25 per share but F&F’s go for $50. As I said, they’re now being traded at huge discounts.

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