Financial Winners & Losers: Fannie Mae

Financial stocks edged higher Tuesday, shrugging off a $2.19 billion first-quarter loss from mortgage lender Fannie MaeFNM.

The government sponsored mortgage buyer also announced it would cut its dividend and raise $6 billion in new capital, saying it fully expected the housing crisis to continue into next year. The Office of Federal Housing Enterprise Oversight, however, said it would lift a two-year-old consent order imposed on the company after an accounting scandal and would lower its capital requirement to 15% from 20% after it raised the money. Shares slumped in early trading, but then they turned around and closed up 8.9% to $30.81.

Fellow government-sponsored mortgage lender Freddie Mac FRE, which reports earnings next week, traded in tandem and closed up 7.1%. The NYSE Financial Sector Index declined in the morning session, but closed up a modest 34.94 to 7,937.42.

Citizens Republic BancorpCRBC shot up 16.9% to $7.78 after the bank was upgraded to outperform by Keefe Bruyette and Oppenheimer.

Elsewhere, real estate investment trust CapitalSource CSE beat analyst expectations by a penny due to a decrease in its provision for loan losses. The stock jumped 7.6% to $15.78, a gain of $1.11.

Shares of Argo Group International HoldingsAGII jumped after the international underwriter of specialty insurance and reinsurance products reported rising profits. First quarter net income increased 47% to $36.9 million, sending shares higher by $2.33 to $37.78.

That wasn't the case for LazardLAZ. The advisory firm's first-quarter earnings plunged 71% as revenue declined due to slowing merger activity. Shares lost 5.4% to $35.46 as the Bermuda-based firm forecast a dismal 2008.