Post by psychecc on Aug 18, 2008 14:00:35 GMT -6
A Treasury spokeswoman said they "have no plans to backstop" them, but since Treasury lacks credibility these days, investors are afraid they'll be wiped out in a bailout.
Link to full article follows.
Fannie, Freddie Stocks Plunge on Investor Worries
By Reuters
| 18 Aug 2008 | 01:00 PM ET
Investors dumped the stocks of Fannie Mae and Freddie Mac after Barron's reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans.
The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies' common stock.
Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.
Shares of Fannie and Freddie , the two providers of home mortgage funding, fell more than 16 percent and some of their bonds sharply underperformed Treasuries.
The selloff pushed the rest of the stock market lower.
A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July.
"The Barron's article overstated Freddie Mac's financial situation," Sharon McHale, a Freddie Mac spokeswoman, told Reuters. "We continue to be adequately capitalized."....
Overseas central banks have sold nearly $11 billion from their holdings of agency-related securities in the past four weeks, awaiting clarity on the extent and nature of U.S. government backing of the two faltering companies, known as GSEs.
"There is a lot of uncertainty with what happens in terms of capital raising and a lot of investors are in a wait-and-see mode," said Rajiv Setia, analyst at Barclays Capital....
The value of some of the two companies' debt, which is at the biggest risk of loss in the event of a government rescue, fell to a record low in comparison with similar Treasury securities.
Spreads on Freddie Mac 10-year subordinated debt widened over Treasury notes to a bid of 370 basis points and offer of 325 basis points, from a close of 285 basis points on Friday, according to one investor, citing a dealer's data.
An insider in the Bush administration told Barron's that Fannie and Freddie "are being jawboned" by the Treasury Department and their new regulator, the Federal Housing Finance Agency, to raise more equity.
If the GSEs fail to raise fresh capital, the administration is likely to mount its own recapitalization, with the Treasury infusing taxpayer money into the agencies, according to the Barron's source.
The report said an equity injection by the government would be a quasi-nationalization -- without having to put the agencies' liabilities on the U.S. balance sheet, and thus doubling U.S. debt....
www.cnbc.com/id/26261254/
Link to full article follows.
Fannie, Freddie Stocks Plunge on Investor Worries
By Reuters
| 18 Aug 2008 | 01:00 PM ET
Investors dumped the stocks of Fannie Mae and Freddie Mac after Barron's reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans.
The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies' common stock.
Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.
Shares of Fannie and Freddie , the two providers of home mortgage funding, fell more than 16 percent and some of their bonds sharply underperformed Treasuries.
The selloff pushed the rest of the stock market lower.
A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July.
"The Barron's article overstated Freddie Mac's financial situation," Sharon McHale, a Freddie Mac spokeswoman, told Reuters. "We continue to be adequately capitalized."....
Overseas central banks have sold nearly $11 billion from their holdings of agency-related securities in the past four weeks, awaiting clarity on the extent and nature of U.S. government backing of the two faltering companies, known as GSEs.
"There is a lot of uncertainty with what happens in terms of capital raising and a lot of investors are in a wait-and-see mode," said Rajiv Setia, analyst at Barclays Capital....
The value of some of the two companies' debt, which is at the biggest risk of loss in the event of a government rescue, fell to a record low in comparison with similar Treasury securities.
Spreads on Freddie Mac 10-year subordinated debt widened over Treasury notes to a bid of 370 basis points and offer of 325 basis points, from a close of 285 basis points on Friday, according to one investor, citing a dealer's data.
An insider in the Bush administration told Barron's that Fannie and Freddie "are being jawboned" by the Treasury Department and their new regulator, the Federal Housing Finance Agency, to raise more equity.
If the GSEs fail to raise fresh capital, the administration is likely to mount its own recapitalization, with the Treasury infusing taxpayer money into the agencies, according to the Barron's source.
The report said an equity injection by the government would be a quasi-nationalization -- without having to put the agencies' liabilities on the U.S. balance sheet, and thus doubling U.S. debt....
www.cnbc.com/id/26261254/