While intoning somberly about how the global financial markets would collapse absent its wipe out of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) common and preferred shareholders, the Treasury has gotten a very slim payoff from its latest weekend bailout plan. To be sure, mortgage rates have fallen almost four-tenths of a percent and the value of mortgage-backed securities (MBS) may rise.
But is it worth all the pain? Investors in their 1.6 billion common shares have lost tens of billions of dollars in shareholder wealth ($139 billion off their peak prices), preferred shareholders will take $30 billion worth of write-offs, and the taxpayer will be on the hook for somewhere between $200 billion and $800 billion. BusinessWeek reports that "the banking industry [is expected] to collectively write down $25 billion to $30 billion on their balance sheets for losses on the preferred shares they are holding."
These banks will experience a decline in their capital ratios which could put some in peril. "There are 12 banks and thrifts that would lose 5% or more of tangible capital were they to take a 100% aftertax, mark-to-market adjustment on their GSE preferreds," writes BusinessWeek. It reports that three banks in particular will fall below minimum "well capitalized" levels -- Gateway Financial Holdings (NASDAQ: GBTS), Midwest Banc Holdings (NASDAQ: MBHI), and Cascade Financial (NASDAQ: CASB).
Besides mortgage-backed securities (MBS) holders Bill Gross ($500 billion) and China's People's Bank ($340 billion), two happy campers are the recently departed Fannie and Freddie CEOs who stand to make $23 million in severance for their handiwork.
Meanwhile, after a pop on Monday, stocks are not far from where they were before this latest weekend bailout. If their blunders weren't so costly to taxpayers, the Keystone Cops running this place would be comic relief.