Last week, government-backed mortgage financier Freddie Mac announced a $2 billion mortgage securities write-down. Freddie said it wants to sell off some of its preferred shares ASAP to raise liquidity. [Editor: On Friday, the Wall Street Journal reported that Freddie has just $600 million in capital above the government-required minimum, forcing it to prepare $5B in preferred shares for sale this week.] Gimme Credit's Kathleen Shanley was skeptical investors would buy, especially since Freddie itself isn't certain how low the securities' value will ultimately fall. Thomson Financial says Freddie sold $194.7B of new debt in 2007 alone, and Fitch Ratings has threatened to cut Freddie's AA- rated preferred shares should the company sell off more securities. Moody's and Standard & Poor downgraded Freddie's outlook from stable to negative. Barron's notes credit swaps on Freddie's debt due in 2012 widened to a 0.92 yield margin over comparable treasuries-- double the 0.45 yield at the beginning of November. Freddie's senior unsecured debt still rates AAA, based on the premise that Freddie is too important to financial market stability for the government to let them fail. AXA bond trader Jerry Jungbauer said the government backing was comforting, but "that doesn't mean prices won't move dramatically."
Commentary: Fannie/Freddie’s Insolvency and Gold’s Immediate Outlook • How Much Can Fannie and Freddie Help the Mortgage Market? • Fannie & Freddie Clobbered Over the Need to Raise Capital • Are Fannie Mae and Freddie Mac Depleted of Equity?
Stocks/ETFs to watch: FRE
Conference call transcripts: Freddie Mac Q3 2007 Earnings Call Transcript
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
FRE 1-yr. chart: