Fannie Mae, Freddie Mac fall on Barron’s curtain call

Washington Business Journal - by Jeff Clabaugh Staff Reporter

Fannie Mae and Freddie Mac shares reached the lowest levels in almost two decades Monday after a Barron’s report said it is increasingly likely the government will have to bail out the mortgage giants.

“It may be curtains soon for the management and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac,” wrote Barron’s Jonathan Laing, saying the Treasury Department is likely to recapitalize them in the months ahead.

“Such a move would almost certainly wipe out existing holders of the agenies’ common stock,” Laing wrote.

He also predicted a bailout would also mean losses for holders of the companies’ preferred shares and holders of their combined $19 billion in subordinated debt.

Fannie Mae stock fell as much as 17 percent Monday. Freddie Mac shares fell as much as 14 percent. Both stocks have lost more than 80 percent of their value this year.

Neither company issued public comments Monday on the Barron’s report. Both companies have previously said they are able to raise sufficient capital on their own. Treasury Secretary Henry Paulson earlier this month indicated a bailout would not be necessary.

The housing bill passed by Congress in July gave the Treasury authority to pump money into Fannie Mae and Freddie Mac by buying their stock, debt or mortgage backed securities.
Fannie Mae and Freddie Mac reported a combined second quarter loss of $3.1 billion. Both companies also slashed their shareholder dividends this month.

Freddie Mac stock (NYSE: FRE) was down 98 cents to $4.87 per share in afternoon trading. Fannie Mae (NYSE: FNM) was down $1.21 to $6.70 per share.