Freddie Shares Tumble on Loss, Dividend Cut

Chief Business Officer Patricia Cook also warned that "most of the expected losses are yet to be realized," noting that the company has posted only about $2 billion in credit losses since the beginning of 2007.

Freddie tried to assuage investors who have recently fretted about the company's liquidity, noting its estimated regulatory core capital was $37.1 billion at quarter-end, some $8.4 billion more than its statutory minimum capital requirement, and $2.7 billion above the 20% mandatory target capital surplus.

Executives reiterated Freddie's intention to raise $5.5 billion worth of capital during a conference call, saying that even the most severe loss projections indicate that those funds will allow Freddie to stay above statutory minimums through 2009. CFO Buddy Piszell said the company has been working with JPMorgan Chase(JPM Quote) and Goldman Sachs(GS Quote) to find investors and is "prepared to go as early as today to raise that money."

Management also provided some clarity on why Freddie has dragged its feet on shoring up capital levels, which regulators and shareholders have been pushing for. Syron said that counsel advised the company that it "would not be a good idea" to raise those funds while it was in the midst of registering with the SEC.

Piszell added that the company is "not putting a date certain" and that there is "no need for us to rush" to raise capital before "market conditions are appropriate."

Celent Senior Analyst Walter O'Haire says it "will be interesting to see are the terms investors will demand" for taking part in the offering. He noted the likelihood of further declines in the housing market, as well as uncertainty around what role the government will take in overseeing Freddie and sister company, Fannie Mae(FNM Quote), now that it has outlined a plan to back the entities with billions in taxpayer dollars. The Treasury Department has hired Morgan Stanley (MS Quote) to offer advice.