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Home > Blog > Category Archives: Preferred Stock

Category Archives: Preferred Stock

Fannie Mae, Freddie Mac Preferred Stock Losses

Fannie Mae. Freddie Mac. Over the past 70 years, they’ve guaranteed some 90% of all new home mortgages in the United States. Today, Fannie and Freddie are under conservatorship – a move that’s costing taxpayers more than $150 billion.

And no one is more bitter than the thousands of investors who purchased preferred shares in Fannie Mae and Freddie Mac stock. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars of preferred stock issued by the two mortgage giants. In lawsuits that have since followed, investors allege that they never knew about the deteriorating financial health of Freddie Mac and Fannie Mae – a decline that was spurred by the two companies’ appetite for risky lending, excessive leverage and investments in toxic derivative products.

When Fannie Mae and Freddie Mac were placed in conservatorship by the federal government, investors with preferred shares watched their investments become essentially worthless.

Many of these investors have filed arbitration claims against the brokerages that they say misrepresented various series of preferred stock in Fannie Mae and Freddie Mac. If you are an institutional investor or retail investor and were misled about Fannie Mae or Freddie Mac preferred shares, we want to hear your story. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA). Please contact us.

Fannie Mae, Freddie Mac Preferred Shares A Disaster For Main Street

Investors who purchased preferred shares of Fannie Mae and Freddie Mac stock continue to lament their decision. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars in various series of preferred stock issued by the two mortgage giants. According to investors, however, the brokerages never revealed key information about the preferred shares and the ticking time bomb they represented.

Specifically, investors allege they never knew about the rapidly deteriorating financial health of Freddie Mac and Fannie Mae – a decline that was largely fueled by the two companies’ voracious appetite for risky lending, excessive leverage and investments in toxic derivative products.

By the time Fannie Mae and Freddie Mac issued select series of preferred stock in 2007 and 2008, the damage had been done. Both companies were fading fast financially and desperately needed an immediate infusion of capital. Enter the idea to issue noncumulative preferred stock to investors. Investors were eager to jump on board. After all, the stock came with attractive dividends of about 8%. As for the toxic nature of Fannie and Freddie’s mortgage portfolio, that was something investors now say they were never told.

The brokerage firms that continued to sell preferred securities in Fannie Mae and Freddie Mac even in the face of the companies’ plummeting financial condition may have had good reason to keep such information under wraps. Why? Because of the profits they made in underwriting fees. As reported in a July 7 article in Forbes titled How Fannie and Freddie Unloaded Their Trash, brokerages took in more than one-third of a billion dollars total in fees between November 2007 and June 2008.

As for investors holding preferred shares in Fannie Mae and Freddie Mac, they saw their investments become essentially worthless with the deepening of the U.S. housing crisis. Finally, in 2008, the federal government took over Fannie Mae and Freddie after the two companies suffered huge loan losses.

A number of investors have since filed arbitration claims against the brokerages that allegedly misrepresented the various series of preferred stock in Fannie Mae and Freddie Mac. If you are an institutional investor or retail investor and were misled about your investments in Fannie Mae or Freddie Mac preferred shares, we want to hear your story. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA). Leave a message in the Comment Box below or via the Contact Us form.

Preferred Stock Losses: Freddie Mac Series Z

Investors of Freddie Mac Preferred Stock, Series Z are unlikely to forget the date of Sept. 6, 2008. It was on that day the U.S. government made the unprecedented move to place both Freddie Mac and Fannie Mae under the conservatorship of the Federal Housing Finance Agency (FHFA).  In doing so, investors holding preferred shares of Freddie Mac Series Z saw the value of their investment plummet overnight.

The initial offering of Freddie Mac Preferred Stock, Series Z occurred in late 2007 when the mortgage giant – whose financial health already was in jeopardy – found itself severely undercapitalized. Underwriters of the Series Z offering included Goldman Sachs, J.P. Morgan and Citigroup Global Markets, as well as others.

As it turns out, the offering circulars associated with Freddie Mac Preferred Stock Series Z failed to alert investors to a number of possible risks that the preferred shares posed. Among the missing information: Freddie Mac was extremely undercapitalized. It had significant exposure to an undetermined amount of mortgage-related losses. The company also lacked proper risk-management procedures. Most important, insolvency was a real possibility in Freddie Mac’s future.

It’s now believed that many of the brokerage firms that acted as underwriters of the Freddie Mac Preferred Stock Series Z offering knowingly kept this information from investors. Not only did they allegedly fail to disclose the true risks associated with the offering itself but they also may have kept the facts about Freddie Mac’s financial condition under wraps, as well.

Freddie Mac’s Series Z offering initially was issued at a price of $25.55 in November 2007. In September 2008, the preferred stock had declined 95%, trading at $1.25 per share.

If you experienced investment losses in Freddie Mac’s Preferred Stock, Series Z or another preferred stock, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.

Some Preferred Stock Is Preferred No More

Overconcentration in certain preferred stocks has devastated the portfolios of thousands of investors. Problems first began when already fiscally troubled companies such as Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers (LEH) and Citigroup (C) issued shares of preferred stocks as a way to raise capital. In turn, a number of brokerage firms marketed the preferred stocks of these companies and the preferred shares of other companies in the banking, insurance and financial sectors as safe and stable investments for income-minded investors, causing investors to over-concentrate their portfolios.

Diversification is the No. 1 rule of investing. When an investor places his or her money into one asset class or market sector, the potential for increased and unnecessary risk of loss goes up dramatically. In the case of certain preferred shares, many brokers failed to disclose not only the potential risks associated with the investments but also failed to provide an accurate picture of the financial health of the issuing companies. In reality, many of these companies were in dire financial straits, having already taken huge financial hits on their balance sheets as a result of losses connected to the mortgage meltdown.

A preferred stock essentially is a security issued by companies to raise capital from investors. The advantage of owning a preferred stock is it pays fixed dividends. Banks and other financial institutions are among the main issuers of preferred stocks, accounting for approximately 80% of the S&P U.S. Preferred Stock Index.

In the past year, however, when share prices of preferred stocks suffered massive losses because of the health of the issuing companies, investors quickly discovered that their preferred shares were not working out as planned. Case in point: Fannie Mae, Freddie Mac and Citigroup.

All three companies were forced to seek financial bailouts from the federal government in order to stabilize their business. This in turn caused the price of their preferred stock to plummet. In other cases, such as with Lehman Brothers Holdings, the company’s financial health was beyond repair, making bankruptcy the only option. As a result, preferred stock holders were left with millions of dollars in investment losses.

On April 9, 2009, a class action lawsuit was filed on behalf of purchasers of Citigroup’s 8.50% Non-Cumulative Preferred Stock, Series F. Among the allegations, the complaint alleges that when Citigroup announced its May 2008 offering of the Preferred Stock, it did so with a false and misleading Registration Statement and Prospectus. Once the offering was complete, Citigroup announced billions of dollars in write-downs because of exposure to debt securities. Investors holding Citigroup’s preferred stock subsequently watched the share prices of their investment fall dramatically.

Preferred shares in Fannie Mae and Freddie Mac also have caused financial devastation for preferred shareholders. On Sept. 8, a mountain of losses forced both companies into a government conservatorship run by the Federal Housing Finance Agency. The government’s seizure of the two lenders essentially wiped out any value that common and preferred stockholders had in the two companies.

Many preferred shareholders in Fannie Mae and Freddie Mac had been told that the risk of investing in either company was minimal, prompting them to over-concentrate their holdings in the companies. When the government’s takeover was announced, they watched helplessly as large percentages of their investments essentially vanished overnight.

Brokers have a fiduciary duty to recommend investments that are within a client’s risk tolerance. They also must provide accurate, material facts regarding those investments. When this duty is breached, investors have the right to hold them accountable by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

If you are a preferred shareholder who suffered investment losses because a brokerage or financial advisor misrepresented the risks of certain preferred stocks, please contact us. We want to hear your story, and advise you of your legal rights.

Preferred Stock Losses: You Have Options

Preferred stock losses in Fannie Mae, Freddie Mac, Lehman Brothers, and other fiscally troubled companies have cost investors dearly over the past two years. Preferred shares generally are considered more conservative, low-risk – investments especially attractive to retirees seeking predictable income via dividends. In many cases, however, the supposedly “low-risk” preferred stocks sold to investors turned out to be highly volatile because of the financial health of the issuing companies.

Many investors had been told by their brokerages and financial advisers that preferred stocks were a safe and secure investment. As a result, they purchased large concentrations ofcertain preferreds, including those like Fannie Mae and Freddie Mac. In the case of the nation’s two biggest mortgage lenders, investors believed they had built-in protection. If either company failed, their investment principal would fall under the protection of the federal government.

Or so they thought.  It didn’t turn out that way, of course. When the government placed the two companies into conservatorship, investors holding preferred and common shares were essentially wiped out, leaving them with huge financial losses and not the “safe” and “predictable” income they had been told to expect.

If you’ve experienced substantial investment losses because a brokerage or financial advisor misrepresented the risks of Freddie Mac, Fannie Mae or other preferred stocks, please contact us. We can advise you regarding your legal options.

Recovering Losses In Freddie Mac Preferred Stock

Investments in Freddie Mac preferred stock have caused financial havoc for countless individual and institutional investors. A number of full-service brokerage firms sold Freddie Preferred Stock (including Series W (FRE-PW), Series X (FRE-PX), Series Y (FRE-PY), and Series Z (FRE-PZ) as a safe, stable fixed-income investment, causing investors to overconcentrate their portfolios. It’s what investors didn’t know that has come back to haunt them.

Offering circulars for Freddie Preferred Stock failed to disclose a number of risks associated with these investments. Specifically, information was not readily apparent regarding Freddie Mac’s exposure to mortgage-related losses or the fact that the company was facing monumental capital issues.

Freddie Mac offered preferred shares to investors as late as November 2007, with an offering of its Series Z at a price of $25.55. In September 2008, Freddie Mac Preferred Stock, Series Z, declined 95%, trading at $1.25 per share.

If you’ve experienced substantial investment losses because a brokerage or financial advisor misrepresented the risks of Freddie Mac preferred shares, please contact us. We want to hear your story and advise you on your legal options.

Fannie Mae, Freddie Mac Preferred Stock Losses

Thousands of institutional and retail investors of Fannie Mae (FNM) and Freddie Mac (FRE) preferred stocks have witnessed the collapse of their investment portfolios following the government’s takeover of the two mortgage giants on Sept. 6, 2008. Many of these investors initially purchased huge concentrations of Fannie Mae and Freddie Mac preferred stock based on misleading information from their brokerages or financial advisers.

In some instances, investors were never told about the potential risks associated with investments in Fannie Mae or Freddie Mac. Instead, the stocks were described as conservative – investments designed to provide investors with consistent income via above-average dividends. After all, Fannie Mae and Freddie Mae stood as the nation’s mortgage giants. They were too big to fail. And, as so-called government-sponsored entities, investments in Fannie Mae and Freddie Mac were guaranteed or implicitly guaranteed by the federal government. At least that’s what many investors believed.

Instead, on Sept. 6, 2008, the federal government seized control of the too-big-to-fail lending companies, placing Fannie Mae and Freddie Mac into a government conservatorship under the Federal Housing Finance Agency (FHFA). In turn, the government’s bail-out wiped out Fannie Mae and Freddie Mac’s common and preferred stockholders. All dividends for the two companies were eliminated.

Several months prior to the near-collapse of Fannie Mae and Freddie Mac, on May 13, 2008, Fannie Mae announced plans to raise some $6 billion in capital by issuing an offering of 8.25% Non-Cumulative Preferred Stock, Series T. In reality, that amount could never sufficiently address the lender’s overall deteriorating financial health, which had nosedived as a result of mortgage-related losses, poor underwriting standards and risk management procedures. The full extent of Fannie Mae’s capital deficiencies was never disclosed to investors, however. Moreover, many investors were advised that the Fannie Mae Preferred Stock, Series T was a safe and stable investment suitable for conservative portfolios.

When the Treasury Department announced takeover plans for Fannie Mae in September 2008, the price of the Fannie Mae Series T Preferred Stock dropped dramatically, falling more than 88% from its initial offering price of $25 per share on May 13, 2008, to $3 per share on Sept. 8, 2008.

If you are an institutional investor or retail investor and were misled about your investments in Fannie Mae or Freddie Mac preferred stocks, we want to hear your story. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA). Leave a message in the Comment Box below or via the Contact Us form.

Fannie Mae, Freddie Mac Preferred Stock Loss Recovery

Investment losses in Fannie Mae and Freddie Mac preferred stock have created devastating financial issues for investors throughout the country. Many of these individuals were sold shares of Fannie Mae and Freddie Mac through brokerages or financial institutions that, in turn, misrepresented the investments, telling clients that the stock was guaranteed or implicitly guaranteed by the federal government.

As we now know, those characterizations were false and misleading. Moreover, many clients never knew the dire financial problems facing the two mortgage giants. On Sept. 6, Fannie Mae and Freddie Mac were seized by the federal government and placed into conservatorship in a deal through which the Treasury Department bought senior preferred shares issued by the two companies. In turn, billions of dollars in equity for holders of Fannie Mae and Freddie Mac’s common and preferred stock were essentially wiped out.

Certain investors may have a viable claim to recover some of their investment losses in Fannie Mae and Freddie Mac preferred stocks. If you’ve suffered preferred stock losses in Fannie Mae or Freddie Mac, we want to hear your story. Leave a message in the Comment Box below or via the Contact Us form.


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