Big Markdowns Coming on GSE Preferred?

Some of the nation's largest depositories -- which are also seller/servicers for the government-sponsored enterprises -- are filing new disclosures indicating that they will take large hits on their investments in Fannie Mae and Freddie Mac preferred stock. On Monday Wells Fargo, the largest annual seller of loans to Freddie, disclosed that it would take a charge against earnings in the third quarter on the $480 million in Fannie/Freddie preferred stock it owns. A spokeswoman for Wells declined to provide a range on what the charge might be. Even though Wells is Freddie's biggest customer, it owned much more in Fannie preferred stock than Freddie -- $336 million to $144 million. Sovereign Bancorp of Pennsylvania said it would take a noncash "other-than-temporary" charge on the $622.6 million GSE preferred shares it owns. An other-than-temporary charge means it cannot "write up" the value of the stock unless the shares recover and it then sells the stock. Sovereign was the 17th-largest Freddie Mac customer in terms of loan sales.