JPMorgan said it would write down the value of its $1.2bn 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 JPMorgan’s 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.
No other bank has written down the value of its Fannie and Freddie preferred shares, and only a few have revealed their holdings. Philadelphia-based Sovereign said last week that it held more than $600m in Fannie and Freddie preferred stock.
In a regulatory filing, JPMorgan said that since June, the value of its preferred shares in Fannie and Freddie had “declined in value by approximately an aggregate $600m”.
The bank said that the precise amount of the losses would not be known until the end of the third quarter.
The value of preferred stock in Fannie and Freddie has tumbled to less than 50 cents on the dollar in recent weeks on fears a US Treasury rescue could wipe out holders of preferred as well as common stock.
The Treasury was granted powers late last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity.
The JPMorgan news came after Freddie easily sold $2bn of short-term debt, helping to reassure investors that Freddie and Fannie still have access to fund their operations without a government rescue.
Freddie and Fannie rose 17.08 per cent and 3.8 per cent respectively, halting last week’s sell-off even as US indexes finished sharply lower on Monday. Fannie and Freddie both lost about 40 per cent of their value last week.
Freddie’s auction of $2bn in three- and six-month bills drew strong demand as buyers were attracted by higher rates.
