September 11, 2008 / 11:33 AM / 10 years ago

UPDATE 2-City National, two others see GSE-related charges

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BANGALORE, Sept 11 (Reuters) - California lender City National Corp CYN.N and smaller banks like LSB Corp LSBX.O and Gateway Financial Holdings Inc GBTS.O joined a host of U.S. banks which may incur impairment charges from the decline in the value of their investments in the mortgage giants.

LSB and Gateway also expressed concern about their capital levels. LSB said its regulatory capital level will be reduced by the charges, but expects to remain “well capitalized” at Sept 30.

Gateway said it will raise cash to remain “well capitalized” under regulatory standards by the end of third quarter.

Holders of preferred shares issued by Fannie Mae FNM.N and Freddie Mac FRE.N have been hit by the federal bailout of the mortgage giants that called for the Treasury Department to take equity stakes in the companies through new senior preferred shares and eliminated dividends on existing preferred shares, pushing the latter farther down the capital structure.

Earlier this week, big U.S. banks like Wells Fargo & Co (WFC.N), Sovereign Bancorp Inc SOV.N and U.S. Bancorp (USB.N) said they expect writedowns and non-cash impairment charges related to their exposure to Fannie and Freddie.

City National, the parent of City National Bank, expects to incur a non-cash charge of $12 million to $13 million in the third quarter related to its exposure to Fannie and Freddie.

LSB sees “significant” writedown of investments in the government-sponsored enterprises (GSEs), and expects its net interest income to be “adversely impacted” in the coming quarters.

The parent of River bank said its Freddie and Fannie preferred securities, which had a cost of $10.1 million in June, had a fair value of $1.1 million on Sept 9.

    LSB added it may have to take another impairment charge if the value of Fannie and Freddie preferred stock drops further.

    Gateway said it will incur a non-cash impairment charge related to the GSEs in the third quarter, but did not specify how much the charge would be.

    Both City National and Gateway do not hold any common stock or other equity securities issued by Fannie Mae or Freddie Mac, the companies said separately.

    Shares of City National were down about 2 percent at $54.60 in afternoon trade on the New York Stock Exchange.

    Gateway shares, which fell as much as 14 percent to $4.55, pared some of their early losses and were down more than 6 percent at $4.92 on Nasdaq. Shares of LSB shed a little over 3 percent and were trading at $13.04. (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)

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