September 2, 2008 / 3:08 PM / 11 years ago

Fitch cuts Fannie Mae, Freddie Mac preferred stock

NEW YORK, Sept 2 (Reuters) - Fitch Ratings on Tuesday cut its ratings on the preferred stock of housing finance companies Fannie Mae and Freddie Mac on concern a lack of access to fresh capital could lead the companies to suspend dividend payments.

The rating company lowered Fannie Mae’s FNM.N preferred stock rating to “BBB-minus” from “A-plus. It dropped Freddie Mac’s FRE.N preferred stock rating to “BBB-minus” from “A.”

Drubbings of the preferred and common stocks over the past two months have effectively limited potential issuance of new shares, Fitch said in a statement. The sell-offs raise risks for the companies since sales of stock since November have been key ways for both to raise billions in capital needed to offset losses from the housing slump.

“The lack of reliable access to the public equity markets appears to be more permanent than Fitch had anticipated,” the rating company said. “It now appears that Fannie Mae’s and Freddie Mac’s ability to access equity markets may need to be precipitated or replaced by more tangible forms of government support.”

Fannie Mae and Freddie Mac common stock have declined about 80 percent since early May, but have erased some losses since Aug. 20 on emerging expectations a nationalization by the U.S. Treasury is not imminent.

Fitch said the capital at Fannie Mae and Freddie Mac remains adequate for the intermediate term. But neither company may post a profit this year or next, and the government may move to support the companies in a bid to buoy the U.S. mortgage market, it said.

Fitch also affirmed the “AAA” long-term debt ratings and “AA-minus” subordinated debt ratings of Fannie Mae and Freddie Mac. The subordinated debt ratings are based on expectations that the companies will maintain adequate capital.

Rival rating company Standard & Poor’s last week lowered preferred stock and subordinated debt ratings of Fannie Mae and Freddie Mac on speculation both types of securities may not draw government support in any bailout.

Moody’s Investors Service on Aug. 22 cut ratings on Fannie Mae and Freddie Mac preferred stock. (Reporting by Al Yoon; Editing by Jonathan Oatis)

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