Interest Rate Roundup

Monday, August 25, 2008

FNM, FRE preferred pain spreads

I mentioned in a recent post that many banks and financial instiutions hold preferred shares issued by Fannie Mae and Freddie Mac. There are a lot of questions about how preferreds would be treated in any bailout. But what is not in question is that the value of the GSEs' preferred shares has fallen sharply. Today, another institution quantified the impact that's having. From an 8-K filing JPMorgan just released:

"JPMorgan Chase & Co. disclosed today that it held approximately $1.2 billion par value of Fannie Mae and Freddie Mac perpetual preferred stock. Such securities are held in the Firm's investment portfolio and are marked to market through the Firm's earnings. The Firm estimates that such preferred stocks have declined in value by approximately an aggregate $600 million in the third quarter to date, based on current market values. The precise amount of losses that may be incurred on these securities for the third quarter is difficult to determine, given the significant volatility being experienced in the market values of these securities."


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