WASHINGTON — Top directors and officials from Farmer Mac, the government-chartered organization that provides funding for agricultural loans across the U.S., met late Tuesday in Washington to discuss ways to stabilize the company.
Farmer Mac faces heavy losses due to its holdings of tens of millions of dollars worth of investments that have rapidly lost value, including preferred stock of its cousin, Fannie Mae, which was seized by the government earlier this month, and Lehman Brother Holdings Inc., the collapsed investment bank.
The company’s options include raising capital by issuing new stock or selling assets. If the company can’t raise capital, its regulator, the Farm Credit Administration, could downgrade its rating, the first time this has happened in its history. That could hurt banks that hold equity stakes in the company and could also curb its ability to make new loans.
A spokeswoman for Farmer Mac wasn’t immediately available for comment late Tuesday.
Farmer Mac, which is formally called the Federal Agricultural Mortgage Corp., was created by Congress in 1988. The company buys mortgages and other loans that banks make to farmers and ranchers in rural America. Farmer Mac then repackages the loans into asset-backed securities. That business model has come under pressure this year as credit markets have seized up.
The bigger problems have come from the Washington-based company’s investment portfolio.
Earlier this month, Farmer Mac disclosed that its holdings of preferred shares in Fannie Mae, another government-sponsored enterprise that the government took into conservatorship earlier this month, left the company facing a $44 million write-down.
Last week, the company disclosed it is likely to suffer another big write-down due to its holdings of $60 million in debt of Lehman Brothers, which filed for bankruptcy earlier this month.
Farmer Mac is the latest financial institution to suffer from its investments in Fannie or Lehman. Many regional banks have been hit especially hard by such losses, which have depleted their capital levels.
Farmer Mac’s shares jumped about 9.3% Tuesday and closed at $3.75, part of a broader rally among financial-services stocks. But the shares have been shelled, losing 85% of their value since June 30. Farmer Mac’s market value has shriveled to about $41 million.
On Tuesday, members of Farmer Mac’s 14-person board of directors flew to Washington from around the U.S. for meetings expected to last at least two days, according to people familiar with the matter.
Last week, the company warned in a securities filing that it “cannot give assurances that it will be in compliance with its statutory minimum capital requirements as of Sept. 30, 2008.”
Farmer Mac said it has hired an unidentified financial advisor to help it come up with “capital restoration strategies, which may include sales of assets, sales of preferred and common stock and other equity securities.”
Farmer Mac’s owners include some of the same banks that are struggling with mounting losses on a variety of loans. Any bank that wants to sell loans to Farmer Mac is required to have an equity investment in the company. As a result, its plunging share price is adding to pressure on those banks.
If Farmer Mac slows its purchase of loans from member banks, that would further hamstring their lending capacity.
The biggest originator of loans sold to Farmer Mac is Zions Bancorp., a Salt Lake City-based bank holding company. In the first half of the year, Zions sold $41 million in loans to Farmer Mac.
At the end of last year, Zions reported holding Farmer Mac securities that it valued at a total of $29 million, according to a securities filing. It isn’t clear whether Zions’ stake has changed since then.
A Zions spokesman said Tuesday that he had no immediate comment, except to say that Zions’ stake in Farmer Mac is “pretty small” and has been scaled back in recent years.
Update: Farmer Mac gets gets capital infusion of $65 million. For those of you who might be confused by “The company buys mortgages and other loans that banks make to farmers and ranchers in rural America. Farmer Mac then repackages the loans into asset-backed securities’ follow this link.