Preferreds begin week soft; Fannie, Freddie securities up on news of Perry Capital lawsuit

By Stephanie N. Rotondo

Phoenix, July 8 - Preferred stocks were extending losses from late last week into Monday trading, a trader said.

"I thought we'd see a continued sell-off," he said. However, he noted that Treasuries were perking up a bit, which helped the sell-off from becoming a major event.

Still, low-coupon issues were still taking the brunt of the beating and "all the preferred funds are down."

Another market source said the Wells Fargo Hybrid & Preferred Securities index was down 40 basis points on the day, equal to a 10-cent dip on average for $25-par paper.

Fannie Mae and Freddie Mac preferreds were bucking the day's trend, trading as much as 45 cents higher at midday. A trader said the gains came on the back of a lawsuit filed by Perry Capital on Sunday, in which the hedge fund alleged that the U.S. Department of the Treasury and the Federal Housing Finance Agency acted illegally when they placed both mortgage firms into conservatorship in 2008, thereby damaging the positions of shareholders.

"Some people are thinking they may have a leg to stand on," the trader said, accounting for the uptick in the preferreds.

Fannie, Freddie climbing up

A lawsuit was filed against the Treasury Department over the weekend that claimed the government acted illegally when it placed Fannie Mae and Freddie Mac into conservatorship in 2008.

The suit was filed by a hedge fund, Perry Capital.

Some investors were seeing a good fight on the back of the lawsuit and sent the two mortgage giants' preferreds into higher territory.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 46 cents, or 9.2%, to $5.46. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) increased by a quarter, or 5.02%, to $5.23 as the 8.25% series T noncumulative preferreds (OTCBB: FNMAT) gained 45 cents, or 6.08%, at $7.85.

According to the lawsuit, Congress initially authorized the Treasury to take a 10% dividend from Fannie and Freddie in order for the companies to receive any bailout funds. Last year, the Treasury pushed through a "sweep amendment" that allowed the government to take nearly all of the firms' profits.

The suit claims that the sweep was unlawful, as it was tantamount to buying new securities, which the Treasury was not authorized to do. The lawsuit also says that the FHFA did nothing to stop the amendment, allowing the government to take nearly all of the funds.

Perry Capital is reportedly not seeking damages, but wants the changes made last year thrown out, which would be a boon for investors.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.