Credit market update September 2008
On Sunday, September 7, 2008, the U.S. government seized control of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), two of the nation's largest financial companies. Details are still unfolding, but we wanted to provide you with an update on the information we have received so far.
- On September 7, 2008, Fannie and Freddie were placed into a conservatorship under the direction of the Federal Housing Finance Agency (FHFA).
- A conservatorship is a legal entity that is appointed to oversee a company until it is in sound and solvent condition. In a conservatorship, the powers of the directors, officers and shareholders are transferred to the conservator – in this case the FHFA.
- The FHFA was created by an act of Congress in July 2008 in response to instability in the credit markets.
- The goal of this conservatorship is to preserve the two companies' assets and property, to carry on their normal day-to-day operations, and to return them to sound and solvent condition.
- The conservatorship will remain in place until the FHFA determines it is no longer necessary. There is no indication of how long this might be.
- There are no plans to liquidate either company, and they are expected to function in their usual manner.
- During this time, the stocks of Fannie Mae and Freddie Mac will continue to trade, with their prices being set by the market, but all dividends on common and preferred stock have been suspended.
- In exchange for the conservatorship, the United States Treasury has been given $1 billion (face value) of senior preferred stock in each company. Any available income will pay the Treasury first.
Most observers believe this is a wise decision that will help restore confidence to the broader financial markets. These actions may affect the performance of some of our investment affiliates. We will provide additional information as soon as it becomes available.
|
