Freddie debt sale eases concerns of nationalization
|
|
|
| Posted
:
Mon, 25 Aug 2008 17:18:40 GMT |
| By
:
Reuters |
| Category
:
US (Business) |
| News Alerts by
Email ( click
here ) |
|
US Business News |
Home
|
|
|
|
By Al YoonNEW YORK (Reuters) - Ailing mortgage finance company Freddie Mac easily sold $2 billion of short-term debt on Monday, reassuring investors that it and rival Fannie Mae can fund operations without a government takeover.Fannie Mae shares rose 9 percent, and Freddie Mac stock gained more than 22 percent in early afternoon trading in New York. Broader markets tumbled.An analyst said the government-sponsored enterprises (GSEs), which own or guarantee nearly half of the mortgages in the United States, were unlikely to be nationalized, which also soothed market jitters.Investors have been dumping their stock and have pushed the shares down more than 90 percent since March on fears the housing slump will leave the two insolvent without emergency support from the government.Freddie Mac on Monday sold $1 billion each in three- and six-month bills, with a measure of bids stronger than its sale earlier this month. Freddie Mac and Fannie Mae must routinely issue debt to refinance maturing issues that fund their combined $1.5 trillion in mortgage investments."The GSEs continue to have access to funding," said Rajiv Setia, a strategist at Barclays Capital in New York. If higher rates are paid for that funding, it will get passed on through higher consumer mortgage rates, however, he said.The companies' ability to sell debt relatively cheaply is crucial not only for their existence but because they are the only large providers of money for the depressed housing market as the credit crunch sidelined banks and Wall Street investment firms.Investors have feared that as mortgage defaults pile up and erode the two companies' capital, the U.S. Treasury would intervene, supporting their access to credit markets but leaving shareholders with nothing.Citigroup analyst Bradley Ball, who has held a "buy" rating through turmoil surrounding the GSEs, challenged that premise."The recent GSE sell-off has been surprising, since the only catalyst was apparently a press report suggesting that federal officials are likely to recapitalize the GSEs soon," Ball wrote. Nationalization is unlikely, he said.Citing an unnamed source, Barron's last week reported a government recapitalization of Fannie Mae and Freddie Mac was increasingly likely and that losses could go beyond common stock to preferred shares and subordinated debt.Ball increased his "risk" rating on the two companies to "speculative" from "high," while keeping a "buy" on the shares. Ball slashed his target prices on Fannie Mae and Freddie Mac by more than half to $9 and $6, respectively.In early afternoon New York trading, shares of Freddie Mac soared 23 percent to $3.45 and Fannie Mae shares climbed 9 percent to $5.46.Ball wrote that options for Treasury Secretary Henry Paulson and the companies include an equity investment by the Treasury, a loosening of capital surplus requirements by their regulator, a sale of mortgage bonds to free up capital, or nothing until market conditions improve."We continue to watch market developments," Treasury spokeswoman Brookly McLaughlin, told reporters. "We continue to be in touch with the companies and their regulators and continue to stay on top of this."The Treasury still believes that the mortgage finance giants should remain shareholder-owned, a source familiar with Treasury thinking told Reuters on Friday.McLaughlin said that the Treasury's new GSE adviser, Morgan Stanley, was not expected to issue a formal, public report on its recommendations to the Treasury regarding its temporary backstop authority. Rather, there would be "exchanges of information" between Morgan Stanley and the Treasury through the end of Morgan's contract in January.Yield spread premiums on the corporate "federal agency" senior debt issued by Fannie Mae and Freddie Mac increased slightly after narrowing sharply last week. Investors believe a government bailout would make the debt more like U.S. Treasury securities, and remove the risk implied by the spread.Fannie Mae on Monday announced it would tap the debt markets for $2 billion in three- and six-month bills.(With reporting by Julie Haviv in New York and David Lawder and Patrick Rucker in Washington; Editing by Tom Hals)
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
|
|
|
|
|
|
Related News
Five more US bank failures bring total for 2009 to 120
New York - Bank failures in the United States have risen to 120 this year as five more regional institutions were added to the list, the US agency that guarantees the safety of bank deposits said. United Commercial Bank in San Francisco with assets o...
US stocks climb slightly despite double-digit jobless rate
New York - US stocks posted mild gains Friday to end the week as investors shrugged off government figures that put the unemployment rate above 10 per cent. The Labour Department said the jobless rate hit 10.2 per cent in the month of October, the hi...
US joblessness hits 10.2 per cent, highest in 26 years - Summary
Washington - The US unemployment rate surged to 10.2 per cent in October, the highest in 26 years as another 190,000 people lost their jobs, the Labour Department reported Friday. The figure comes after a 9.8-per-cent jobless rate in September and wa...
US joblessness jumps to 10.2 per cent, highest since 1983 - Update
Washington - The US unemployment rate surged to 10.2 per cent in October, the highest in 26 years, as another 190,000 people lost their jobs during the month, the US reported Friday. The figure reported by US Labour Department came after the 9.8 per ...
US jobless rate jumps to 10.2 per cent
Washington - The US unemployment rate surged to 10.2 per cent in October as another 190,000 people lost their jobs, according to US Labour Department figures released Friday. The jobless rate stood at 9.8 per cent in September. Unemployment had been ...
Bulls stop James, edge Cavs - Summary
Los Angeles - The King couldn't deliver in the clutch. Luol Deng and Joakim Noah combined to deny LeBron James a potential game-winning drive in the final seconds as and the visiting Chicago Bulls snapped the Cleveland Cavaliers' three-game winning...
Mortgage lender Fannie Mae posts nearly 19-billion-dollar loss
Washington - US mortgage lender Fannie Mae said Thursday that it would seek 15 billion dollars in federal aid, after posting its ninth consecutive quarterly loss. Fannie Mae reported a net loss of 18.9 billion dollars in the third quarter of 2009, co...
|
|
|
|
|
|
|
|
