Regional banks at risk due to GSE preferred stock

The bailout of Fannie and Freddie has been a rank disaster for common shareholders of the two companies. They are clearly the big losers. The preferred shares are not as widely owned, but regional banks tended to be big owners. Hey, they sounded like a great idea when people assumed that Fannie and Freddie would live forever. According to a table from Goldman Sachs posted by the Financial Times, tiny Gateway Financial has 22 percent of its "tangible equity at risk" in GSE preferred shares. Midwest Banc Holdings is at 20 percent. The biggest regional banks with the most exposure are Westamerica and Sovereign; they have 10.6 and 8.5 percent of their respective tangible equity at risk in these securities. As the FT notes, the big question is Wells Fargo, which has not disclosed how much GSE preferred shares it owns. But it did say it will take a charge for the third quarter.

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