EVERETT — The federal government’s takeover of mortgage giants Fannie Mae and Freddie Mac will put a multi-million-dollar dent in Cascade Bank’s bottom line.
The Everett-based financial institution said the worth of its investment plummeted with the weekend takeover of the Fannie and Freddie, which back about 75 percent of all U.S. mortgages, holding or backing more than $5 trillion in mortgage debt.
Carol Nelson, president of Cascade Financial Corp., said the bank remains solid, despite the investments gone bad.
“This really doesn’t impact the nature of our business,” she said, adding the bank should remain well-capitalized.
At least one analyst suggested, however, that Cascade may have to raise more funds to keep that good status.
In a filing with the Securities and Exchange Commission, Cascade Financial Corp. said it held shares of Fannie and Freddie with a book value of about $18.6 million. By Monday, the value of those shares was down to $2.1 million. That loss will be recorded as an after-tax charge in the bank’s third-quarter results. The filing added that the total potential remaining loss on the company’s investment in Fannie and Freddie was about $12 million after taxes.
The U.S. Treasury Department this week seized the two mortgage giants after the troubled firms lost much of their value in the mortgage meltdown.
Banks large and small bought and held preferred shares of Fannie and Freddie, which were long considered to be safe investments that paid out big dividends. After the federal takeover, however, many classes of the two companies’ preferred stock plunged around 80 percent in value. They continued to fall Tuesday, losing about 12 percent to 16 percent on average.
Publicly traded shares of Freddie Mac and Fannie Mae both soared past $60 within the past year. On Tuesday, however, Freddie Mac’s stock price closed at 88 cents; Fannie Mae shares closed at 99 cents. Both are being removed from the Standard &Poor’s 500 index today.
The government’s takeover of Fannie and Freddie could have the greatest impact on about two dozen community banks around the nation, including Cascade. Analysts have singled out Cascade, along with Sovereign Bancorp Inc. of Philadelphia, as among the biggest potential losers from their holdings of preferred shares.
Nelson said that even if the entire investment had to be written off, the company expects to remain well-capitalized.
“That is our expectation,” she said Tuesday.
Analyst Tim O’Brien of New York-based Sandler O’Neill said Cascade faces a “high likelihood” of needing to raise additional capital. He noted that total risk-based capital at Cascade was $139 million as of June 30 and must stay above $130 million for Cascade to remain well-capitalized under regulatory requirements.
The Associated Press contributed to this story.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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