Dividend Dead for Securities
Treasury's move hurts insurance firms, folks on Main Street.
The Treasury just made a rather clear statement about their feelings for common and preferred securities (outside of TRUPS, which are backed by debt): You won't be getting a dividend for the foreseeable future.
This is generally in line with what I have been thinking (along with Minyan Peter) for quite some time.
But let me mention a few other items.
1. This is highly negative for insurance companies, as they are large owners of this paper and will now become "permanently impaired" due to loss of income. This will need to be written off/sold.
2. Mom and Pop, the holders of most of the non DRD-eligible securities, get smoked yet again - after the Fannie Mae (FNM)/Freddie Mac (FRE) deal, this is getting tough.
3. It officially closes the preferred securities market as a way for companies to finance themselves.
4. I openly wonder if this is an experiment or will result in a pattern. For the most part, I believe it will be a pattern.
The debt unwind continues. I imagine Bank of America (BAC) is next up.
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