WASHINGTON (AP) - Shares of Fannie Mae and Freddie Mac fell Monday after an
analyst said each of the government-sponsored mortgage-finance companies need to
raise about $20 billion.
The financial markets remain in turmoil despite another rate cut and
emergency lending action announced Sunday by the Federal Reserve.
Analysts say both Fannie and Freddie need to raise new cash in order to play
a bigger role in a housing market that has been stung by slumping home prices
and rising foreclosures.
They each need to raise about $20 billion and the banking system needs up to
$250 billion, according to a note from Friedman Billings Ramsey analyst Paul J.
Miller Jr. The financial system is up $1.2 trillion undercapitalized, depending
on the amount of exposure reduction that already has occurred.
"Fresh capital will help to stabilize pricing and eventually stop the
destruction of capital from continued securities write-downs," Miller wrote.
Shares of Freddie Mac dropped 68 cents, or 3.2 percent, to $20.50 in midday
trading, while Fannie Mae slipped $1.55, or 6.9 percent, to $20.81 after earlier
falling to a 52-week low of $18.25.
"Fannie and Freddie Mac are part of the solution to this problem and always
have been," Fox-Pitt Kelton analyst Howard Shapiro said in an interview. "Part
of that solution is getting mortgages into the strongest possible hands as soon
as possible, (to those) who can manage the credit risk over the long term, and
the two strongest players to do that are Fannie Mae and Freddie Mac."
On March 6, shares of Fannie and Freddie fell after the Treasury Department
denied rumors that the government would formally back the companies. The
Treasury is not obligated to assist either one in a financial emergency, but
many on Wall Street believe the government would bail them out if there is a
collapse.
Elsewhere, JPMorgan on Sunday said it would buy Bear Stearns Cos. for $236.2
million, or $2 per share. The federal government fast-tracked the deal to avoid
a bankruptcy after bad bets in the troubled mortgage market helped Bear Stearns'
shares to plummet near $4 Monday from $62.30 a week ago.
Sunday also saw the Federal Reserve become a lender of last resort for Wall
Street investment firms to begin securing short-term emergency loans. The
central bank, in a rare weekend move, also approved a cut in its emergency
lending rate to financial institutions to 3.25 percent from 3.50 percent.
"The government, through either the Fed or Capitol Hill, will find a
solution to fix the many problems facing financials today, but it will take time
and it will be painful, and we would expect normalcy in the markets not to
return until sometime in late 2009 or early 2010," Miller wrote.
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