Banks Strain as Capital Drains

Some undercapitalized banks were nearly wiped out by securities losses springing from the government takeover of Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote) in September, which all but eliminated the value of the mortgage giants' preferred stock.

There have been indications that the federal government's infusion of capital into 52 bank and savings-and-loan holding companies (at last count) is settling things down. However, Treasury's planned $250 billion in preferred equity investments is mainly going to stronger institutions.

Preliminary third-quarter industry data for the nation's banks show that the number of undercapitalized institutions increased considerably from June 30. ...