S&P Lowers Ratings on Big Firms

Standard & Poor’s Rating Services lowered ratings on some securities of Fannie Mae and Freddie Mac. The move could make it more difficult for the financial institutions to raise capital, according to The Wall Street Journal. Both companies were cut from AA-minus to A-minus. Their senior debt ratings are now at AAA.

The AAA ratings means that the U.S. government would have to back the senior debt of the two mortgage companies in a crisis, according to the WSJ. There is less assurance that the government would protect holders of preferred stock and subordinated debt. Dividends on preferred stock are especially at risk.

Over the past four quarters, Fannie and Freddie have combined losses of $14 billion over the past four quarters. The downgrades will put "negative pressure" on any new issues of preferred stock by the companies, according to a report by Federal Financial Analytics, a Washington research firm.