Sen. Dodd: Banks need to raise more capital

WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Christopher Dodd on Monday said he agrees that banks need to raise more capital to cushion against financial shocks in light of the problems at Bear Stearns Cos. Inc.

In a fire sale backed by the Federal Reserve, JPMorgan Chase & Co plans to buy Bear Stearns for $2 a share. The deal values Bear Stearns, until recently the fifth-largest U.S. investment bank, at about $236 million. That's more than 90 percent below the price of Bear's stock at Friday's close, when it finished at $30.85.

Asked if he thought banks need to raise more capital, Dodd said, "I do, I do," during a telephone call with reporters.

He said government-backed mortgage finance giants Fannie Mae and Freddie Mac need to do the same.

"I'm anticipating a conversation we'll be having with both Fannie and Freddie about acquiring more capital," Dodd told reporters. "They are the major source of liquidity today."

Dodd, a Connecticut Democrat, lauded the actions by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson for finding a buyer for investment bank Bear Stearns Cos. Inc, whose liquidity crisis surfaced quickly late last week.

Paulson, speaking to reporters on Monday after a White House meeting with President George W. Bush and his economic advisers, said Fannie Mae and Freddie Mae play an important role in the mortgage finance market.

"And it's important that they continue to play a vital role and continue to raise capital," Paulson said. "And I would say the same thing about a number of financial institutions."

WANTED: MORE MONEY TO BUY MORTGAGES

U.S. banking regulators have repeatedly said that U.S. banks -- though some are hurting and trying to adjust to the mortgage and credit problems -- are mostly well-capitalized because the jump in foreclosures on subprime mortgages and subsequent turmoil in the credit markets occurred after they had racked up years of record profits.

Freddie Mac Chief Financial Officer Buddy Piszel said last week that the government-chartered company had enough capital and that "no dilutive capital raise" was planned. Richard Syron, Freddie Mac's chief executive officer, said the same day that the company's first responsibility is to protect shareholders.

Rajiv Setia, director of U.S. fixed income strategy at Barclays Capital in New York, however, said raising capital by government-sponsored enterprises Fannie and Freddie would not be a bad thing, even though they don't need more.

"I think it is prudent for the GSEs each to raise $10 (billion) to $15 billion in capital," Setia said. "They technically don't need it, but if they could raise capital and use it to buy mortgage assets, I think it would spark a turnaround in sentiment much more so than anything the government is doing."

Dodd is planning legislation along with House Financial Services Committee Chairman Barney Frank to save troubled homeowners by proposing to strengthen the role of the Federal Housing Administration to secure refinanced mortgages.

During an interview on CNBC, Dodd said Bernanke and Paulson might be more open to "something" but did not specify if they might warm to some sort of federal intervention.

"I think they're far more open to the idea today about doing something," he said during the television interview. "I think they are far more amenable to it than they certainly were 48 hours ago."

(Reporting by John Poirier; Additional reporting by Al Yoon and Lynn Adler in New York; Editing by Jan Paschal)