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Fannie, Freddie Bailout Boosts Stock Futures

Mike Taylor

Premarket futures were indicating U.S. stocks would leap higher at the open Monday after the U.S. government said it would take over mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote).

Futures for the S&P 500 were up 35 points at 1276 and were 34 points above fair value. Nasdaq futures were up 39 points at 1809 and 40 ahead of fair value.

Trading during the previous, Labor Day-shortened week was marked by highly volatile trading and uncertainty about the future direction of the economy. A drop in crude oil prices failed to stoke significant buying ambition for equities, as traders worried that declining demand for commodities signaled a wide slowdown in growth.

On Sunday, the Treasury Department and Federal Housing Finance Agency said they would temporarily seize Fannie Mae and Freddie Mac, replacing the mortgage giants' CEOs, buying preferred shares of the companies and offering additional capital support as Fannie and Freddie wade through increasing home-buyer defaults.

The two government-sponsored entities -- which have issued more than $5 trillion in mortgage-backed securities and credit -- are central to the health of the U.S. home-lending market and are lynchpins of the financial sector. Investment bank Morgan Stanley (MS Quote) aided the government in its takeover of the firms.

In other company news, struggling brokerage Lehman Brothers (LEH Quote) announced over the weekend that it would replace two members of senior management as it prepares to lay off between 1,000 and 1,500 employees.

Elsewhere in the financials, the Wall Street Journal announced that Washington Mutual (WM Quote) gave the boot to CEO Kerry Killinger, who oversaw $19 billion in mortgage-related writedowns during his tenure.

The Journal reported that cigarette maker Altria (MO Quote) would buy chewing-tobacco producer UST (UST Quote).

Looking at the day's economic data, the Federal Reserve's measure of July consumer debt is expected to be released this afternoon.

As for commodities, the price of crude oil was up $1.07 at $107.30. Gold gained $8 to $810.80.

Longer-dated U.S. Treasury securities were quickly dropping in price. The 10-year was down 28/32 to yield 3.81%. The 30-year was losing 1-2/32, yielding 4.36%. The dollar was gaining on the euro, but falling against the yen and pound.

Overseas exchanges, including the FTSE in London, the Dax in Frankfurt, the Nikkei in Japan and the Hang Seng in Hong Kong, were making substantial gains.