Magazine article American Banker

Another Headache for Fannie: Dividend Veto Power by OFHEO

Magazine article American Banker

Another Headache for Fannie: Dividend Veto Power by OFHEO

Article excerpt

The Office of Federal Housing Enterprise Oversight will let Fannie Mae pay dividends scheduled for Dec. 31 on all its preferred shares.

However, the regulator has said it was not prepared to approve payment of such dividends for subsequent periods and will review such requests for each quarter, Fannie said Thursday.

Now that it has declared Fannie "significantly undercapitalized," OFHEO has veto power over all dividend payments by the government-sponsored enterprise.

Fitch Inc. cited that power Thursday when it downgraded Fannie's $4.1 billion of preferred shares to A-plus from AA-minus.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 gives OFHEO the veto power when a GSE is deemed "significantly undercapitalized." Last week OFHEO said Fannie was nearly $3 billion in the hole.

Janis Smith, a Fannie spokeswoman, said Thursday that common stock dividends for the fourth quarter were already paid on Nov. 25.

Normally, Fannie's board votes on dividend payments in the first month of each quarter, and the GSE pays common shareholders in the second month and preferred ones in the third, Ms. Smith said. However, she also said that the dividends on common shares are subordinated to those on preferred shares. Ms. Smith would not discuss whether the order of paying dividends would change as a result of OFHEO's veto power.

Fitch said it might cut its rating on the preferred stock further, and that it had put Fannie's $12. …

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