Bailout's pain

The federal government takeover of mortgage finance companies Fannie Mae and Freddie Mac cost the parent company of Nevada Security Bank the better part of $15 million.

Executives of The Bank Holdings, the Reno-based parent of Nevada Security Bank, emphasized that the bank remains well-capitalized and able to raise even more capital if necessary to weather the economic storms.

But they also left little doubt they were angry that Nevada Security Bank and other community banks across the country were left holding the bag when Fannie Mae and Freddie Mac were seized in early September.

Banks such as Nevada Security have been allowed to hold preferred stock in the two mortgage companies as part of their core capital, which they use to guard against losses.

In fact, federal regulators sometimes encouraged banks to invest in Fannie Mae and Freddie Mac preferred stock as a way to diversify their holdings, says Camden Fine, president and chief executive officer of the

Independent Community Bankers of America, an industry group.

Nevada Security Bank held $15 million in preferred stock from the two companies when they were placed into conservatorship by the federal government, and the value of that equity investment has dropped sharply.

Fannie Mae preferred that traded as high was $43 a share in the past year was selling last week at $2.59.

In a filing with the Securities and Exchange Commission, The Bank Holdings executives said they expect to take a write-down on the value of the preferred stock issues during the third quarter, although it didn't detail the size of the potential write-down.

The publicly traded stock of the Reno company was selling at $4.50 a share last week, down sharply from its highs above $15 last autumn.

Jack Buchold, chief financial officer of the company, said The Bank Holdings is selling other investments to

shore up its balance sheet.

Hal Giomi, the chairman and chief executive officer of The Bank Holdings, noted that the government takeover of Fannie Mae and Freddie Mac keeps the companies' bondholders the largest is the government of China whole, while hitting the balance sheets of banks and other investors in the companies' preferred and common stock.

Because it is publicly held and required to file reports of significant developments with the SEC, Nevada Security was the first northern Nevada bank to acknowledge problems with investments in Freddie Mac and Fannie Mae.

First Independent Bank, which is owned by Western Alliance Bancorporation of Las Vegas, appears to have only a modest holding in the preferred stock issues, said Jim DeVolld, president of First Independent Bank.

Neither Great Basin Bank in Elko nor Heritage Bank of Nevada in Reno had any of their capital tied up in the preferred stocks.

"We didn't trust it," said Stan Wilmoth. president of Heritage Bank of Nevada.

Statewide, damage to banks from the Fannie Mae and Freddie Mac takeover didn't appear to be widespread or deep, says Bill Uffelman, president and chief executive officer of the Nevada Bankers Association.

"Hopefully, all the shoes that are going to be dropped have been dropped," Uffelman said. "We've got a bumpy bottom here."

Even well-capitalized banks pinched by the collapse of the mortgage companies' preferred stock will need to trim their plans for growth and tighten their lending standards, the Independent Community Bankers of America said in a letter to the U.S. Senate Banking, Housing, and Urban Affairs Committee last week.