Freddie May Need New Capital
Updated from 10:40 a.m. EST
Freddie shares were plummeting almost 29% after announcing before the opening bell that it may need to cut its dividend by 50% and seek out additional sources of capital. The so-called government-sponsored entities, which purchase residential mortgages and mortgage related securities, hired Goldman Sachs (GS) and Lehman Brothers (LEH) to help it hit the Street for fresh funds.
"We do not believe it would be wise to be sanguine about the intermediate-term housing market," said CEO Richard Syron during Freddie's third-quarter earnings call. He added, however, that he still remains positive about the long-term opportunities for shareholders.The comments did little to quell investor fears, which sent Freddie shares down $10.85 to $26.65. Its bigger peer, government-sponsored entity Fannie Mae, which found itself having to defend its accounting practices after a media report suggested it had changed the way it accounted for losses last week, also was down almost 24% to $29.75. McLean, Va.-based Freddie said it would need to set aside $1.2 billion in the third quarter to account for bad home loans, prompting the nation's second-largest guarantor of home mortgages to seek additional sources of capital. The quarterly loss equated to $3.29 a share. In the same period a year earlier, Freddie Mac lost $715 million, or $1.17 a share.
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