FISI - News and Analysis from Seeking Alpha 'FISI' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/symbol/fisi Ten Banks That Will Be Hurt by the Takeover of Fannie and Freddie http://seekingalpha.com/article/94375-ten-banks-that-will-be-hurt-by-the-takeover-of-fannie-and-freddie?source=feed 94375 The government takeover of Fannie Mae (FNM) and Freddie Mac (FRE) should be a positive for most banks.  The deal will lower mortgage rates and will also allow the Treasury Department to purchase mortgage-backed securities from firms in the open market.  That will allow a lot of mortgage paper that is currently clogging the system to start moving again.  However, several banks will be hurt by the bailout of FNM and FRE because they own a considerable amount of FNM and FRE preferred equity relative to their capital bases. 

According to my math, the government will essentially own about 80% of FNM and FRE after the bailout.   The current preferred equity will no long pay a dividend until at least 2010.  While the preferreds have traded 45% to 65% lower already, they will most likely be completely wiped out from here.  If the companies can recover, there might be some value to the common and preferred equity in five to ten years.  However, as the companies enter run-off, my guess is that the common and preferred equity will not regain much value. 

]]> Mon, 08 Sep 2008 07:37:43 -0400 ContraHour The government takeover of Fannie Mae (FNM) and Freddie Mac (FRE) should be a positive for most banks.  The deal will lower mortgage rates and will also allow the Treasury Department to purchase mortgage-backed securities from firms in the open market.  That will allow a lot of mortgage paper that is currently clogging the system to start moving again.  However, several banks will be hurt by the bailout of FNM and FRE because they own a considerable amount of FNM and FRE preferred equity relative to their capital bases. 

According to my math, the government will essentially own about 80% of FNM and FRE after the bailout.   The current preferred equity will no long pay a dividend until at least 2010.  While the preferreds have traded 45% to 65% lower already, they will most likely be completely wiped out from here.  If the companies can recover, there might be some value to the common and preferred equity in five to ten years.  However, as the companies enter run-off, my guess is that the common and preferred equity will not regain much value. 


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