Fitch Eyes Fannie's Preferred Stock

Fitch Ratings has placed Fannie Mae's preferred stock, rated AA-minus, on Rating Watch Negative in the wake of Fannie's announcement that it plans to raise $6 billion in new capital and reduce its common stock dividend. "While Fitch views the prospect of incremental capital and dividend reduction positively, the proportion of preferred stock to total capital may grow higher from already elevated levels," the rating agency said. "As a result, Fitch believes that preferred shareholders could absorb higher losses as their proportion of total capital increases. This scenario would warrant a one-notch differential between [Fannie Mae's] subordinated and preferred stock ratings." Fitch expressed skepticism about Fannie's projection that the additional capital will fund growth and absorb higher credit losses, opining that it will not be sufficient to fund new business. The rating agency can be found online at http://www.fitchratings.com.