NEW YORK (Reuters) - The U.S. Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital, Bill Gross, who manages the world’s biggest bond fund, told Bloomberg Television on Wednesday.
“By the end of the third quarter, the preferred stock in Fannie and Freddie will be issued, the Treasury will have bought it,” said Gross, co-chief investment officer at Pacific Investment Management Co. “We’ll be on our way toward a joint Treasury-agency combination.”
Freddie Mac, one of the two giant players, in the U.S. mortgage market, posted its fourth straight quarterly loss on Wednesday, as it braced for a prolonged U.S. housing market crisis by setting aside twice as much money for bad loans and cutting its dividend by at least 80 percent.
Freddie’s chief financial officer Buddy Piszel reiterated that the company has adequate capital, and said the company can wait for “choppy” market conditions to improve before raising capital, which may exceed $5.5 billion.
Gross is among investors and analysts predicting that won’t be enough. The government will probably buy $10 billion to $30 billion of preferred stock, Gross said.
Reporting by Jennifer Ablan;