Fannie, Freddie Takeover Takes Out Small Bank

More troubling, unexpected fallout from the government's dramatic intervention.

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Here's a look at some additional troubling fallout from the government's recent takeover of mortgage finance giants Fannie Mae and Freddie Mac:

From the American Banker:

Count Gateway Financial Holdings Inc. as another casualty in the government takeover of Fannie Mae and Freddie Mac.

By all accounts the $2.1 billion-asset Virginia Beach, Va., banking company has been a good performer, boasting fast growth and strong asset quality. But late last year it bought $40.4 million of Fannie Mae and Freddie Mac preferred stock that became nearly worthless when the government took them over this month.

Its capital depleted, Gateway agreed to sell itself to the $845 million-asset Hampton Roads Bankshares Inc. in Norfolk, Va., for the bargain price of $101 million.

Hampton Roads CEO Jack Gibson told the newspaper, referring to the government-sponsored enterprises: "I think the GSE situation helped facilitate this and make the transaction very affordable for the shareholders of both companies."

Stifel, Nicolaus analyst Carter Bundy called the deal "quite remarkable" because it would involve the takeover of a $2.1 billion-asset company by one with assets of less than half that, the American Banker reported.

"Mr. Bundy said he expects Gateway to report a $33.6 million loss this quarter after taking an estimated $38 million writedown on its Fannie and Freddie stock," the American Banker reported.