S&P Downgrades Fannie And Freddie, As Stocks Tumble To Their Lows Of The Day

Fannie Mae

Photo: futureatlas via flickr

S&P has (expectedly) downgraded Fannie and Freddie from AAA to AA+.Given that these are appendages of the US government, this can’t be at all surprising.

Nonetheless, stocks are at their lows of the day, with the NASDAQ off 3.3%.

Here’s the full announcement, below:


  • On Aug. 5, 2011, Standard & Poor’s lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’.
  • As a result, we have also lowered the long-term issuer credit ratings and related issue ratings on select government-related entities (GREs) to ‘AA+’ from ‘AAA’.
  • The issuer credit ratings of these financial institutions and their relevant debt issues are removed from CreditWatch, where they were placed July 15, 2011.
  • The outlooks for all 12 FHLBs, and the issue level ratings for Fannie Mae, Freddie Mac, the FHLB System, and the Farm Credit System are negative.
NEW YORK (Standard & Poor's) Aug. 8, 2011--Standard & Poor's Ratings Services 
said today that it lowered its issuer credit ratings and related issue ratings 
on 10 of 12 Federal Home Loan Banks (FHLBs) and the senior debt issued by the 
FHLB System to 'AA+' from 'AAA'. We have also lowered the ratings on the 
senior debt issued by the Federal Farm Credit Banks to 'AA+' from 'AAA'. The 
ratings on the individual farm member banks are not affected.
     In addition, we have lowered the senior issue ratings on Fannie Mae and 
Freddie Mac to 'AA+' from 'AAA'. Our 'A' subordinated debt rating and our 'C' 
rating on the preferred stock of these entities remain unchanged. Finally, we 
have affirmed the short-term issue ratings for these entities at 'A-1+' and 
removed them from CreditWatch Negative where they were placed July 15, 2011.
     The downgrades of Fannie Mae and Freddie Mac reflect their direct 
reliance on the U.S. government. Fannie Mae and Freddie Mac were placed into 
conservatorship in September 2008 and their ability to fund operations relies 
heavily on the U.S. government. In addition to the implicit support we factor 
into our ratings, the U.S. Treasury has demonstrated explicit support by 
providing these entities with capital quarterly, as necessary.
     The downgrades of 10 of the 12 FHLBs and the FHLB System's senior debt 
reflect a one-notch reduction in the U.S. sovereign rating. Before we 
downgraded the U.S., under our GRE criteria, 10 of the 12 FHLB banks were 
rated 'AAA', the same level as the U.S. sovereign because they have either 
'aa+' or 'aa' stand-alone credit profiles and we classify them as having a 
very high likelihood of receiving support from the government if needed. The 
FHLBs of Chicago and Seattle were already rated 'AA+' prior to the U.S. 
sovereign downgrade as they have lower stand-alone credit profiles ('aa-' and 
'a+', respectively) than the other 10 FHLBs. The FHLB System is classified as 
being almost certain to receive government support if necessary under our GRE 
criteria. Thus, the FHLB System debt is rated at the same level as the U.S. 
sovereign rating. The implicit support that we factor into the issuer and 
issue credit ratings relates to the important role the FHLBs and the FHLB 
System play as primary liquidity providers to U.S. mortgage and housing-market 
     The downgrade of the senior debt issued by the Farm Credit System 
reflects a one-notch reduction in the U.S. sovereign rating. Under our GRE 
criteria, the Farm Credit System is classified as having a very high 
likelihood of receiving support from the government if needed.  The Farm 
Credit System's stand-alone credit profile is 'aa'. Thus, under our criteria, 
the notches of uplift that we factor into the ratings on debt issued by the 
System decrease to one notch from two notches when the sovereign has a 'AA+' 
rating rather than a 'AAA' rating. The issuer credit ratings on the four Farm 
Credit System Banks that we rate are unaffected by the downgrade of the U.S. 
sovereign given their 'a+' stand-alone credit ratings and high likelihood of 
support classification under our GRE criteria. The implicit government support 
that we factor into our ratings for the Farm Credit System debt and the four 
rated banks considers the system's mission to provide stable and reliable 
funding to the U.S. agricultural and rural sectors.
     We have also lowered the ratings on 126 Federal Deposit Insurance 
Corp.-guaranteed debt issues from 30 financial institutions under the 
Temporary Liquidity Guarantee Program (TLGP), and four National Credit Union 
Association-guaranteed debt issues from two corporate credit unions under the 
Temporary Corporate Credit Union Guarantee Program (TCCUGP) to 'AA+' from 
'AAA'. The downgrades on the TLGP and TCCUGP issues reflect their direct 
credit support from the U.S. Treasury for timely and ultimate repayment.
     The TLGP was formed to facilitate capital-markets borrowing for U.S. 
banks and bank holding companies during the global credit crisis. Similarly, 
the TCCUGP was formed to assist corporate credit unions that ran into 
financial difficulties as a result of significant losses in their investment 
     For related rating actions on other U.S. financial services companies, 
please see <a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6802843&rev_id=3"> </a>
<a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6802843&rev_id=3">Ratings On The U.S. Central Securities Depository And Three Clearinghouses Lowered Following U.S. Sovereign Downgrade </a>, published Aug. 8, 
2011, on RatingsDirect on the Global Credit Portal.

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