NEW YORK (Reuters) - Insurers who bought stock in Fannie Mae FNM.N and Freddie Mac FRE.N could suffer losses as a result of the government takeover of the home-funding giants, according to a Citigroup research note.
Analyst Joshua Shanker said the government’s decision to seize control of Fannie and Freddie could wipe out the value of common equity and could also affect holders of preferred shares.
Figures compiled earlier by rating agency A.M. Best show U.S. insurers are more heavily invested in debt issued by the mortgage giants than in equity.
However, in total, insurers hold some $4 billion in Fannie and Freddie equity, according to the Oldwick, New Jersey-based rating agency.
Citi’s Shanker, in a research note issued late on Sunday, said that while insurers’ overall exposure to the government-sponsored enterprises (GSEs) was “modest,” Hartford Financial Services Group Inc (HIG.N) held about $511 million of preferred stock as of July 14.
A spokeswoman for Hartford said there had been no update on the size of its holdings since that time.
Others that appear to have bought equity of the GSEs include Allstate Corp (ALL.N) and Genworth Financial Inc (GNW.N), according to a research note issued by Fox-Pitt Kelton analyst Mark Finkelstein last month.
American International Group Inc (AIG.N), the world’s largest insurer, has not disclosed its holdings of U.S. agency equity. However, Shanker said AIG’s exposure appeared limited “as the company has around $3 billion of exposure to preferred equity, though the book appears highly diversified.”
Reporting by Lilla Zuill; editing by John Wallace