Freddie Mac May Need to Raise $6B

Number-two residential mortgage lender Freddie Mac (FRE) may need to raise as much as $6 billion to bolster its waning reserves, Fox-Pitt Kelton analyst Howard Shapiro said Tuesday. The government-sponsored company told investors Tuesday it will require a 'large transaction' to boost its reserves. Other analysts say the company likely needs about $5 billion. "It's not going to be a small number," Portales Partners analyst Gary Gordon said (Bloomberg). In its Q3 earnings call Tuesday, CEO Dick Syron said, "Look this is a very, very difficult time. This is not happy news... We have a difficult situation in front of us but we are confident and we are committed that we can work through it in a way that benefits both our shareholders in our mission to the mortgage market and the U.S. economy," (transcript). Freddie Mac said it may slash its $0.50/share quarterly dividend. Another option may be to issue $3 to $4 billion in preferred stock. Spokesman Michael Cosgrove said the company hasn't set a specific target as to how much capital it will raise. With less money to buy new mortgages, troubles at Freddie and number-one lender Fannie Mae (FNM) could be cause for concern in an already troubled residential mortgage markets. "This is a disaster for the broader mortgage capital markets," Shapiro said. "To the extent that Fannie Mae and Freddie Mac cannot grow, you are taking even more liquidity out of the markets," (Bloomberg). Freddie Mac plummeted 29% Tuesday; Fannie Mae fell 25%.

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