Many banks own these shares, especially the preferred stock — nice and safe, generous dividends. Well, the commons are down about 90% and the preferreds about 50%.
Soon, your bank will have to declare these losses. And they will count against capital…and deposits…
"It is doubtful that banks which hold these assets have written them down yet, but with a downgrade they will almost certainly be forced to do so in the near future. For the record, Fannie Mae has 17 classes of preferred stock, with more than 600 million shares outstanding. Freddie Mac has 24 classes of preferred stock, with about 460 million shares outstanding. The existing shares are trading worse than junk bonds, paying 17-19%.
And it may be a total write-off. It is hard to imagine how Treasury Secretary Paulson, or a new Treasury Secretary next year, could put US taxpayer money into the companies at risk without wiping out the current common and preferred shareholders. The justified outrage would be huge."
That means that your bank will be forced to take massive losses. Can they afford it?