Freddie Mac FRE.P could post losses totaling $20 billion to $40 billion in 2009, hurt by higher credit costs and write-downs in mortgage assets, an analyst at Friedman Billings Ramsey said.
As a result of the losses, the Treasury will have to infuse $30 billion to $50 billion in 2009, and postpone any thoughts of spinning the company back as a publicly traded one till 2010, analyst Paul Miller said in a note to clients.
Freddie Mac reported a $25.3 billion quarterly loss on Friday as the housing slump worsened, forcing the second-largest provider of U.S. home loan funding to draw on a $100 billion Treasury Department lifeline.
The McLean, Virginia-based company's regulator had submitted a request for the Treasury Department to provide $13.8 billion for Freddie Mac to erase the shareholder equity deficit, which the company expects to receive by November 29.
"We believe shareholders will focus on the government sponsored enterprises' earnings losses and capital position, as losses should determine the magnitude of capital injections that may be required by the Treasury," Miller said in a note to clients.
The U.S. government seized Freddie Mac FRE.P and its larger rival Fannie Mae FNM.P in September, pledging to inject capital as needed for the companies to operate and help stabilize the housing market. The move subordinated and nearly wiped out shareholders of Freddie Mac stock, which on Friday closed at 67 cents.
Analyst Miller maintained his "underperform" rating and a price target of 50 cents on the stock of Freddie Mac, reflecting the conservatorship status and the significant dilution to existing common shareholders through the Treasury capital injection.
"Given the severity of the housing crisis and the ongoing turmoil in the mortgage market, we believe conservatorship will last beyond 2009, and that our price target accurately reflects little value in the common shares," Miller said.
He expects Freddie Mac to post lifetime credit losses of $50 billion to $80 billion.
(Reporting by Anurag Kotoky in Bangalore; Editing by Amitha Rajan)