Fannie Spanks Dividend

The government-sponsored mortgage purchaser eyes a $7 billion preferred stock offering.
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Fannie Mae

on Tuesday slashed its dividend and said it would seek $7 billion in preferred stock offerings, in the latest subprime mortgage-related hit for the government-sponsored purchaser of home loans.

Fannie plans on slashing its dividend by 30% to 35 cents from 50 cents, starting in the first quarter of next year, the company said in a statement. The quasi-government agency, which was established by Congress to purchase qualifying mortgage loans from lenders, also said it will raise cash through a series of preferred stock offerings this month.

Fannie CEO Daniel Mudd said the planned offering was "a comprehensive, conservative plan to serve the market and manage our capital."

A Fannie spokeswoman declined to comment on the move or whether future dividend cuts were in the offing.

Fannie Mae's move to shore up its balance sheet follows a capital-raising initiative by smaller sister company

Freddie Mac

, which was forced to raise some $6 billion in cash through a similar batch of preferred share offerings.

Turmoil in the mortgage market has shaken up Fannie and Freddie, which have been forced to hit the capital markets to raise sufficient funds to complete mortgage purchases without exceeding certain regulatory caps.

Fannie, which also raised some $500 million in preferred stocks in November, reported a third-quarter loss of $1.4 billion. Freddie incurred a net loss of about $2 billion.

Late last week, Freddie completed the sale of non-convertible preferred stock, paying a coupon of 8 3/4% fixed for five years, which will downshift to 7 7/8% after five years. There was believed to be one large anchor institutional or high-net-worth investor for the $6 billion offering, according to sources who tracked the debt securities offering.