Thursday, September 11, 2008

Investors Slammed by Fannie Mae and Freddie Mac Seizure

Anywhere from 25 to 30 regional banks who own their preferred shares will be hurt by the Treasury plan, government banking sources say. Wall Street firms say the number is larger. Big banks including JPMorgan Chase and Wells Fargo could be hurt.

Some banks could be battered hard. Losses from Fannie and Freddie preferred stock holdings at Sovereign Bancorp could wipe out up to a year’s worth of profit at the bank, analysts at CreditSights estimate.

A research note from Keefe, Bruyette & Woods identified 38 regional banks, mostly smaller outfits, potentially hurt by the plan. Goldman Sachs says up to 40 banks and financial firms will be hurt. At least eight banks had more than 10% of their capital tied up in the shares, while another six had between 5% and 9%. It’s estimated that $36 bn in preferred holdings in Fannie and Freddie sit on bank balance sheets around the country.

The Federal Deposit Insurance Corp. now has on its watch list 117 problem banks and thrifts, the highest level since the middle of 2003. That’s up from 61 in the year ago period and 90 in the first quarter. The 11th bank of the year, Silver State, failed last week.

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