The crisis gripping Fannie Mae and Freddie Mac spread across the financial system on Monday as JPMorgan Chase warned of a possible $600 million (323 million) loss from its holdings of preferred shares in the two mortgage financing groups.
JPMorgan says it would write down the value of its $1.2 billion of preferred shares in Fannie and Freddie by half. Banks and insurers own most of the $36bn in preferred stock in Fannie and Freddie, and JPMorgans announcement will raise pressure on other holders to make similar writedowns.
Preferred shares are a hybrid of debt and equity and are attractive to investors because they pay interest above equivalent debt instruments.
The full story is available at the Financial Times web-site.