WASHINGTON (AP) -- A government rescue of Fannie Mae and Freddie Mac could be costly for scores of investment, banking and insurance companies that hold billions of dollars in preferred shares in the mortgage finance giants.Speculation has been building on Wall Street that a government investment to rescue Fannie and Freddie would come in the form of a cash infusion through the acquisition of preferred shares in the companies.
Preferred shares usually pay a fixed dividend and have priority over common stock when it comes to dividends and bankruptcy liquidation. While slightly riskier than bonds, which have the highest priority in times of trouble, companies often invest in preferred shares for certain tax advantages.
Investors appear to believe existing common stockholders could be wiped out if there is a government bailout. Fannie and Freddie's shares have lost more than 90 percent of their value this year.
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