Fannie, Freddie face delisting threat

NEW YORK (Reuters) - Fannie Mae and Freddie Mac could eventually be delisted from the New York Stock Exchange and face the ignominy of trading on the pink sheets after a U.S. government takeover destroyed most of the value of their common stock.

The shares of both mortgage finance companies plunged below the critical $1 level on Monday, putting them front-and-center on the watch list of the New York Stock Exchange's regulatory arm.

As part of the bailout, the U.S. Treasury will receive warrants to buy up to 79.9 percent of the companies' common stock, diluting shareholder value. Dividends will be eliminated.

"We're working very closely with the companies and are talking to them on a regular basis, but there are a lot of moving parts right now and we'll see how it all shakes out," said Scott Peterson, a spokesman for NYSE Regulation, which oversees the NYSE.

The companies, whose shares once traded above $74, faced further humiliation on Monday, when Dow Jones said they will be removed from the Dow Jones Financial Services Titans 30 Index, as of the open of trading on Thursday.

The two government sponsored enterprises will be replaced in the index by credit card network Visa Inc and Chinatrust Financial Holding Company Ltd.

Fannie and Freddie shares ended the day down more than 89 percent and 82 percent at 73 cents and 88 cents, respectively.

NYSE-listed companies whose shares close below $1, on average, over 30 days receive a letter from NYSE Regulation giving them six months to get their shares back above $1.

Peterson said some companies may be given an additional six months, but NYSE Regulation always reserves the right to delist stocks at any time "if it's just clear the company isn't going to make it."

A "pink sheet" stock is one that is traded over-the-counter because it does not meet the listing requirements of exchanges such as the NYSE, which is operated by NYSE Euronext. The daily listings of OTC stocks were first printed on pink paper.

On Sunday, the U.S. Treasury said it would take control of Fannie and Freddie, which together back about half of the country's $12 trillion in home mortgages.

Before markets opened on Monday, the NYSE halted pre-market trading in the companies' shares to "allow investors to digest the news ... and to evaluate the resulting aggregate supply and demand."

(Reporting by Jonathan Spicer, additional reporting by Phil Wahba; editing by John Wallace and Andre Grenon)