No U.S. rating risk yet from Fannie, Freddie: agencies

NEW YORK (Reuters) - Any U.S. government takeover of mortgage finance companies Fannie Mae and Freddie Mac would not likely trigger a downgrade of the United States' "AAA" sovereign credit rating, the three major rating agencies said on Friday.

All three said they saw no immediate threat to the U.S. sovereign rating, although one agency warned that a more generalized financial sector crisis could trigger a rethink.

Nikola Swann, a credit analyst with Standard & Poor's in Toronto, said a U.S. government takeover of the two mortgage finance giants alone would not precipitate a sovereign downgrade.

"Could that one change by itself cause a downgrade or negative outlook? The answer is 'no,'" said Swann.

He noted, however, that "if there is a broader financial sector problem ... that could be more serious and could mean a more serious evaluation of the rating."

Wider financial system problems could occur in a long and deep economic recession that substantially adds to the debt burden of the U.S. federal government, Swann added.

A Moody's Investors Service analyst said that any U.S. government takeover of the mortgage companies would not be likely to affect the United States' "AAA" rating.

"We think the U.S. government has quite a manageable level of debt and it has a strong balance sheet," Steven Hess, a New York-based Moody's analyst, said in an interview. Any shock to its balance sheet from Fannie and Freddie support would be manageable, he said.

While a takeover of Fannie and Freddie does not appear likely, "it's not out of the realm of possibility," Hess added.

Another possibility would be for the U.S. government to guarantee the their debt without injecting cash, Hess said. "It would only be in the event that Fannie and Freddie couldn't come up with the funds to repay that debt that the U.S. government would be on the hook and that probably wouldn't happen in the intermediate term anyway."

SHARES PLUNGE

A report in The New York Times on Friday said the U.S. government may take over Fannie Mae and Freddie Mac if their funding problems worsen, causing their shares to plunge.

Fannie Mae was down 22.4 percent at $10.25, off a 2008 low at $6.87, while Freddie Mac shed 10 percent to trade at $7.20, off a session low at $3.89. They topped the list of the New York Stock Exchange's biggest percentage losers in early afternoon trading.

"If there was a bailout, I expect it in the form of Fed liquidity support with capital injection, which would come from the U.S. budget, but I don't think it would be on such a scale that would cause us very big concern from the sovereign credit perspective, given where U.S. public finances are at the moment," Brian Coulton, Fitch Ratings' head of high-grade sovereign ratings, told Reuters.

Any government takeover of Fannie Mae and Freddie Mac is unlikely to put the U.S. triple-A sovereign rating at risk, Coulton said.

Swann also said S&P expected the U.S. government would support the two companies to prevent a default if necessary, but added the agency does not believe this is likely to be necessary.

One possible scenario would involve the government injecting some $20 billion or $30 billion into Fannie and Freddie, "which is not that big in the context of (government budget) deficits that are being run," Swann said.

However, some market analysts sounded more concerned about the U.S. federal government's exposure to the mortgage behemoths.

"It would have an adverse effect on U.S.'s creditworthiness if it takes on (GSE-related) debt," said Jim DeMasi, chief fixed-income strategist, Stifel Nicolaus & Co. in Baltimore.

The U.S. Treasury debt market sold off sharply on Friday, with some bond analysts citing the potential for long-term deterioration of the sovereign credit rating and concerns about sharply increased government debt issuance.

"Expect more supply across the curve," said Brian Edmonds, head of rates trading, Cantor Fitzgerald, New York. "Ultimately, rates (yields) in the U.S. are going to nudge higher just on supply dynamics," he said.

Fannie and Freddie own or guarantee $5 trillion of debt, close to half of all U.S. mortgages. They have been hit hard by the nation's housing crisis, seeing borrowing costs rise and suffering billions of dollars of losses as many investors lose confidence they can raise sufficient capital to stay afloat.

Coulton said he did not expect the U.S. government to take over the struggling mortgage companies and any capital injection, though large in dollar terms, was not going to be huge as a percentage of U.S. gross domestic product.

U.S. public debt stood at 57 percent of GDP at the end of last year.

"For triple-A sovereign public finances to become a really serious concern the debt would need to be heading into the 80-90 percent of GDP range," Coulton said. "We think it's pretty unlikely that we are going to get there in the U.S."

S&P last affirmed the U.S. triple-A rating in January with a stable outlook.

Fitch affirmed the U.S. triple-A rating with a stable outlook in May and Coulton said the agency has not conducted any special review of the rating in light of recent concerns about Fannie and Freddie.

(Additional reporting by Dena Aubin, Anastasija Johnson and Richard Leong; editing by Gary Crosse)