Summary
This 8-K filing from Wells Fargo & Company (WFC) on September 8, 2008, addresses the financial impact of actions taken by the U.S. Treasury Department and the Federal Housing Finance Agency concerning Fannie Mae and Freddie Mac. Specifically, Wells Fargo announced that it will record an other-than-temporary impairment and a non-cash charge to earnings in the third quarter of 2008 related to its investments in perpetual preferred securities issued by these government-sponsored enterprises. The company's aggregate cost for these perpetual preferred investments in Fannie Mae and Freddie Mac was $336 million and $144 million, respectively. The filing notes that these securities were trading at a significantly reduced value, between five to 10 percent of their par value, at the time of the report. It is important for investors to note that Wells Fargo explicitly stated it does not hold any common or other equity securities of Fannie Mae or Freddie Mac.
Key Highlights
- 1Wells Fargo will record an other-than-temporary impairment on its investments in Fannie Mae and Freddie Mac perpetual preferred securities.
- 2A non-cash charge to earnings will be recognized in the third quarter of 2008 due to this impairment.
- 3The company's total cost for these perpetual preferred investments was $336 million in Fannie Mae and $144 million in Freddie Mac.
- 4These securities were trading at a distressed value, 5-10% of par, indicating a significant decline.
- 5Wells Fargo has no exposure to common or other equity securities of Fannie Mae or Freddie Mac.
- 6This action is a direct response to the U.S. Treasury and FHFA's actions regarding Fannie Mae and Freddie Mac.
- 7The impairment is a non-cash charge, meaning it impacts earnings but not immediate cash flow.