more Fannie/Freddie stuff
posted on
Sep 08, 2008 05:56PM
Golden Minerals is a junior silver producer with a strong growth profile, listed on both the NYSE Amex and TSX.
To no one’s surprise, common and preferred shareholders in Fannie Mae (FNM) and Freddie Mac (FRE) got crushed Monday, following Treasury Secretary Henry Paulson’s announcement this past weekend of a plan to take the companies under government control to reassure investors in the companies’ senior debt and mortgage-backed securities.
Shares in both mortgage finance companies plunged beneath a dollar in furious trading, in light of a government plan to recapitalize Fannie and Freddie in exchange for shares of a new series of preferred stock that will be senior to all existing shares.
As a result, the companies’ preferred shares plunged almost as steeply as the common. While Fannie common shares were off 87% at 75 cents apiece, shares of its Series S fixed-to-floating rate noncumulative preferred shares plunged 80% from Friday’s close, to $2.90 each.
Fannie had issued $7 billion worth of the Series S stock last December in the first of two rounds of major capital raising during the mortgage crisis of the past year. Buyers of the preferred shares were promised an annual dividend rate of 8.25% for the first two years and at least 7.75% thereafter, but with Paulson saying that the companies won’t be able to pay dividends while they’re under government control, what shareholders will get from now on will be nothing.
At their recent price, the preferred shares have lost 88% of their value in less than a year. That’s bad news for big holders such as Franklin Advisers, which held 11.2 million shares, as well as Loomis Sayles, with 7.5 million, and Natixis Asset Management, with 5.4 million.
“The obligations related to this preferred stock, including any dividend payments, are solely the obligation of Fannie Mae,” reads an offering circular for the Series S preferred shares issued last December. “The preferred stock is not guaranteed by, and is not a debt or obligation of, the United States or of any of its agencies or instrumentalities.” How well the holders know that now.
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