July 18, 2008 / 5:06 PM / 11 years ago

Freddie Mac files with SEC; first step to capital

WASHINGTON/NEW YORK (Reuters) - Freddie Mac won approval from regulators on Friday to sell the stock needed to overcome mounting losses, and the Wall Street Journal said the mortgage finance company may seek $10 billion.

The approval clears the way for the company to fulfill its promise in May to raise $5.5 billion to bolster its balance sheet, allowing it to continue its support of the deflating U.S. housing market.

Freddie Mac FRE.N in its filing said it expects to “take actions” to maintain its required capital, which has been eaten away by rising defaults among the trillions of dollars of mortgages that the company guarantees.

A spokeswoman later said the company had no immediate plans to raise capital, reducing fears the company would mint a massive number of new shares and dilute existing shareholders.

That helped send shares of Freddie Mac and rival Fannie Mae FNM.N higher for a third straight day, climbing 12 percent and 23 percent, respectively.

Lawmakers and regulators increasingly have come to rely on Freddie Mac and Fannie Mae to stabilize the worst U.S. housing downturn since the Great Depression by buying loans from lenders and providing a dependable source of mortgage finance.

Investors have been concerned for weeks that the two companies would need expansive amounts of capital to offset burgeoning losses from delinquent borrowers and record foreclosures.

“We continue to review and consider alternatives for managing our capital including issuing equity in amounts that could be substantial, reducing our common dividend and limiting the growth or reducing” portfolio investments, it said.

Freddie Mac said it is not under any mandate to raise more than the $5.5 billion, and that expected second quarter financial results suggest it will have enough capital. Its safety and soundness regulator, the Office of Federal Housing Enterprise Oversight, said it was pleased with Freddie Mac’s registration and its commitment to capital was appropriate.

“While this is encouraging, as it means that there does not appear to be a large loss (in the second quarter) that would have required a larger capital raise, we would note that weaker credit results will pressure near-term results,” Credit Suisse analyst Moshe Orenbuch said in a research note.

Investors have rushed to sell shares in Freddie Mac and Fannie Mae in recent weeks amid concern of shareholder dilution. The plunging stock prices means the companies would have to sell a greater number shares to raise the same amount of capital.

The timing of the sale of shares, which will include common and preferred stock, depends on market conditions and approval by Freddie Mac directors, a Freddie Mac spokesman said. Dealers were gauging investor interest on Friday, an investor said.

Over the past two days, shares of Freddie Mac have recovered some of the deep losses they suffered last week. The recovery follows a hastily arranged plan by the Treasury and Federal Reserve to backstop it and Fannie Mae with greater borrowing abilities and the possibility of an investment by the U.S. government.

The plan met resistance in Congress, where many lawmakers are worried that a bailout could expose taxpayers to trillions of dollars in liabilities.

Lawmakers also resisted a plan to exclude any debt incurred from the rescue plan against the federal debt limit, which Congress is expected to soon increase to $10.615 trillion from $9.815 trillion.

Lawmakers are waiting for the judgment of the Congressional Budget Office on the plan’s potential cost.

The Wall Street Journal reported on Friday that Freddie Mac is considering a share sale of as much as $10 billion.

Freddie Mac and Fannie Mae raise money for housing by selling debt cheaply, thanks to an implied guarantee from the government, and then use the proceeds to buy mortgages from lenders. They repackage the loans as mortgage-backed securities with their guarantee and sell them to investors or hold them in their $1.5 trillion portfolios.

Additional reporting by Deborah Jian Lee and Jennifer Ablan in New York, and Donna Smith in Washington; Editing by Tom Hals

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below