Global economic concerns remain focus; Fannie, Freddie decline, dragging down Bank of America

By Stephanie N. Rotondo

Portland, Ore., Aug. 5 - The preferred stock market continued to fall amid lingering European and U.S. economic concerns, traders reported Friday. On the plus side, the market did close up from its intraday lows.

One market source said the market was off by 56 cents, or about 2.25%, on average. However, at its lows, preferreds were generally down nearly 5%.

Volume was also relatively decent given the overall weakness.

Fannie Mae came out during the session to say that it would need $5.1 billion more from the government. That put pressure on the mortgage giant as well as its counterpart Freddie Mac.

Bank of America Corp. preferreds also softened, in part because of its rising costs associated with Fannie and Freddie holdings. The preferreds were also reacting to news that New York's attorney general is putting a crimp in the bank's $8 billion mortgage settlement plan, claiming the settlement is not big enough.

Elsewhere, ING Groep NV's preferred shares fell again, though the company reported better earnings on Thursday.

Fannie, Freddie, BofA falter

Fannie Mac and Freddie Mac preferreds performed "generally poorly, as you would expect," a market source said.

The source was referring to news that Fannie Mae said it will need $5.1 billion from the U.S. government in order to stay afloat.

"They're paying 10% interest, and it's killing them," a trader said of the company's government loans.

"None of that news makes it seem likely that they will turn that dividend back on," the first source added, noting that it also seemed unlikely that some form of restructuring in the industry would occur in time to save Fannie and Freddie.

Fannie's series L preferreds (OTCBB: FNMAN) dropped 44 cents, or 11.17%, to $3.50. Freddie's 5.79% preferreds (OTCBB: FMCCK) meantime fell 70 cents, or 16.28%, to $3.60.

Combined, Fannie and Freddie have requested a total of $168.5 billion from taxpayers. Fannie also said that it lost $6.1 billion in the second quarter.

Neither issuer has been optimistic about paying the bailout funds back any time soon.

Still, Fannie and Freddie are becoming more aggressive in hitting up banks to recover funds from soured loans. In particular, that has weighed on Bank of America, which has already made a $3 billion settlement with the firms.

For its part, Bank of America is now saying that costs tied to Fannie and Freddie loans that have gone south might be more than previously anticipated. Add that to news that the New York attorney general is fighting its $8 billion mortgage settlement and rumors that the bank might have to raise as much as $50 billion in new capital, and the preferreds are losing weight.

The bank's series H depositary shares (NYSE: BACPH) were one of the day's most actively traded issues, with 1.02 million shares changing hands. They hit a low of $23.96 during the session and then closed down 12 cents at $24.91.

ING remains weak

Despite decent earnings results out Thursday, ING Groep's preferreds remain under pressure and one market source opined that it had something to do with economic troubles in Belgium.

For the quarter, ING reported a 24% increase in profits at $2.16 billion. The increased earnings also included an impairment charge of about $437.4 million due to its Greek exposure.

The bulk of the gain came from ING's insurance unit.

Still, the perpetual hybrid preferreds (NYSE: IGK) declined 70 cents to $24.12, with about 1.18 million turning over. The 7.375% preferreds (NYSE: IDG) lost 90 cents, closing at $21.22.

British regulators are reportedly calling for U.K.-based banks to disclose more information about their exposure to Belgium, as Lloyds Banking Group plc recently said in a conference call.

ING is based in Amsterdam.

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