Nationalization of Fannie Mae and Freddie Mac Watch
John Hempton on Frannie

I Don't Understand...

Al Yoon writes:

S&P slashes Fannie, Freddie preferred stock to junk: NEW YORK, Sept 7 (Reuters) - Standard & Poor's on Sunday cut the ratings on Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) preferred stock to junk status after dividends were eliminated in a takeover bu the U.S. government.

S&P boosted its outlook on the housing finance companies' "BBB-plus" subordinated debt ratings to positive from negative amid signs interest payments would not be affected.

The Treasury is taking an equity stake in the government sponsored enterprises to shore up their financial stability, and placing them under conservatorship to manage their businesses of providing money to the U.S. housing market.

The preferred stock ratings dropped to "C" from "BBB-minus," according to the S&P statement. It was the second cut by S&P in less than two weeks.

S&P also affirmed the "AAA" senior debt ratings of the GSEs, and cut their risk-to-the-government ratings to "R" from "A-minus," before withdrawing that designation.

I see this as good news for the old preferred, not bad news: at a cost of $2B (and 80% of common stockholder's equity) the government guarantee has been activated and the GSEs have been told to expand their portfolios further.