Freddie Mac, Fannie Mae Shares Slump As They May Raise More Capital

July 7, 2008 2:15 p.m. EST

New York, NY (AHN) - Shares of Fannie Mae and Freddie Mac plunged on Monday over reports that the government-chartered mortgage firms are likely to raise more capital.

The investors have been speculating that Freddie is finding it difficult to raise fresh capital to shore up its weakened balance sheet.

The two largest U.S. providers of financing for home loans tumbled as the market analysts are concerned over reports that banks may unload more mortgage bonds.

Shares of Fannie Mae tumbled $2.89 or 15 percent to $15.89 and Freddie Mac plunged by as much as $3.31 or 23 percent to $11.19 in New York Stock Exchange composite trading on Monday.

The analysts from Lehman Brothers Holdings Inc. wrote in a report on Monday that the two largest mortgage-finance companies may have to raise more capital to a total of $75 billion, including $46 billion by Fannie Mae and $29 billion by Freddie Mac.

Last month, Lehman Brothers said in a report that Fannie Mae and Freddie Mac may post a second-quarter operating loss of $1.20 per share and 55 cents a share, respectively, more than it had expected earlier.

U.S. Treasury Secretary Henry Paulson has emphasized the important role of government-sponsored enterprises Fannie Mae and Freddie Mac in raising capital for financing houses.

Meanwhile, reacting to the reports, Freddie Mac said that it is not likely to raise capital until after posting the second quarter earnings report next month.

The financial shares led by Fannie Mae and Freddie Mac pulled down the U.S. stocks on Wall Street, including the shares of other banking firms.

Shares of JPMorgan Chase & Co., which is No.3 U.S. bank by assets, declined by $1.31 or 3.7 percent to $34, followed by Citigroup Inc., the biggest, shed $0.70 or 4.2 percent to $16.12 on Monday.