Freddie Details Plans to Raise Capital

The mortgage buyer will sell $6 billion in preferred stock and halve its dividend.
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Freddie Mac (FRE) said it plans to raise $6 billion through preferred stock sales as the mortgage buyer seeks to bolster its capital levels.

The company, as was widely expected, also said it will slice its dividend in half.

The moves come a week after Freddie warned that it would

need to seek out additional funding sources to meet government-required capital requirements, sending shares plunging 29% in one day. Freddie, along with sister company

Fannie Mae

(FNM)

, has been battered by increasing mortgage defaults and the shrinking value of U.S. homes.

The McLean, Va., firm said it will issue $6 billion in non-cumulative perpetual preferred stock, which it expects will help it meet the 30% surplus in capital levels required by the government.

On Sept. 30, Freddie had an estimated $600,000 in excess of the 30% surplus capital level imposed by its regulator, the Office of Federal Housing Enterprise Oversight. The company plans to use the newly raised cash to buttress its capital base "in light of actual and anticipated losses necessitated by GAAP accounting requirements."

Freddie also reduced its quarterly payout to 25 cents a share, a move that the company said last week that it was seriously considering.

"Freddie Mac is announcing today a proactive capital management plan that will help us meet the 30% surplus and address regulatory concerns and GAAP accounting requirements, provide sufficient capital to continue fulfilling our important housing mission through the current market environment, and better position us to effectively manage the company going forward," said Chairman and Chief Executive Officer Richard Syron in a statement.