U.S. banks rise after Fannie, Freddie bailout
NEW YORK (Reuters) - Shares of the biggest U.S. banks jumped as much as 10 percent before the opening bell on Monday after the government bailout of home finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N).
The U.S. government on Sunday seized control of Fannie Mae and Freddie Mac, launching what could be its biggest bailout ever in an effort to support the U.S. housing market and ward off more global financial market turbulence.
The action, prompted by worries over the companies' shrinking capital, was the latest in a series of emergency steps taken by U.S. authorities to quell what is now a year-long credit market crisis that has helped push many economies toward recession.
Billionaire Warren Buffett cheered the decision in an interview with CNBC, saying the U.S. government "did exactly the right thing".
Bank of America Corp (BAC.N) shares soared 9.4 percent to $35.26 before the bell, while Citigroup Inc (C.N) shares jumped 9.85 percent to $ 20.95, and JPMorgan Chase & Co (JPM.N) stocks were up 7.3 percent to $ 42.45.
Meanwhile, Wachovia Corp WB.N shares climbed 10.5 percent to $18.51, and Wells Fargo & Co (WFC.N) stocks grew 6.73 percent to $33.30.
"The near term perception here is that this move by the Treasury is providing some stability to the financial markets and, of course, they provided some liquidity to the mortgage market," said Walter Todd, portfolio manager at Greenwood Capital Associates.
Fannie Mae and Freddie Mac own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt.
The congressionally chartered companies, the two largest sources of U.S. housing finance, have suffered combined losses of nearly $14 billion in the last four quarters.
As part of the plan, the Treasury is taking an equity stake in the companies, will purchase mortgage-backed securities they issue and will extend a credit line to them. In addition, Fannie Mae's and Freddie Mac's top executives were ousted.
The financial turmoil has forced banks to tighten credit conditions and to post close to $500 billion in credit losses and write-downs.
(Reporting by Juan Lagorio; Editing by James Dalgleish and Derek Caney)
