Fannie Mae and Freddie Mac common stock was delisted from the New York Stock Exchange today. This brought back memories regarding preferred stock losses that continue to weigh down investment accounts. Many investors sustained significant financial losses as a result of holding large, concentrated positions in a single preferred stock such as Fannie Mae, Freddie Mac and Lehman Brothers. Additionally, many investors sustained significant financial losses as a result of large concentrated positions in a single sector such as banking.
Preferred stocks are a class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. Technically, they are equity securities, but they share many characteristics with debt instruments. There are different types of preferred stocks such as preferred trusts, cumulative preferred stocks, callable preferred stocks, and others. As with any securities, there are advantages and disadvantages and differing types of risk associated with preferred stocks.
Many times preferred stocks are sold as a safe, stable fixed-income investment. For example, Fannie Mae and Freddie Mac preferred shares were touted as suitable for retired individuals who wanted an investment designed to generate income. However, the risks associated with preferred shares were not disclosed or understood by many retired investors.
Just because an account or an individual investment has decreased in value does not necessarily mean that a financial adviser has acted inappropriately. At Crary Buchanan, we provide consultations concerning negligence arising from improper financial advice. If you experienced substantial losses as a result of overconcentration in a preferred stock such as Fannie Mae or Freddie Mac or were not advised about the risks of investing in preferred shares, we invite you to call us to discuss your rights and remedies under the law.