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In an 11am press conference with "Bazooka Hank" Paulson and Jim Lockhart, Director of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac were put under conservatorship. While the CEOs of both firms will stay on in a consulting capacity, Herb Allison, formerly CEO of TIAA-CREF and former vice chairman of Merrill Lynch has been chosen to head Fannie Mae. David Moffett, former vice chairman of US Bancorp has been chosen to head Freddie Mac. Common and preferred dividends have been suspended. And while the common and preferred stocks aren’t being wiped out, they’re sitting way at the back of the bus with the bazooka wielding U.S. Treasury sitting in front of them.
Treasury has taken three additional
steps to complement FHFA’s decision to place both enterprises in
conservatorship. First, Treasury and FHFA have established Preferred Stock
Purchase Agreements, contractual agreements between the Treasury and the
conserved entities. Under these agreements, Treasury will ensure that each
company maintains a positive net worth. These agreements support market
stability by providing additional security and clarity to GSE debt holders –
senior and subordinated – and support mortgage availability by providing
additional confidence to investors in GSE mortgage backed securities. This
commitment will eliminate any mandatory triggering of receivership and will
ensure that the conserved entities have the ability to fulfill their financial
obligations. It is more efficient than a one-time equity injection, because it
will be used only as needed and on terms that Treasury has set. With this
agreement, Treasury receives senior preferred equity shares and warrants that
protect taxpayers. Additionally, under the terms of the agreement, common and
preferred shareholders bear losses ahead of the new government senior preferred
shares.
Paulson’s full statement, as well as fact sheets are below.
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Tags: Credit Crunch, Fannie Mae / Freddie Mac, Fed, Henry Paulson
