Fannie Mae, Freddie Mac shares jump again

SOURCE:

Reuters

2008-07-17 11:32:58

NEW YORK (Reuters) –

Investors snapped up shares of Freddie

Mac (FRE.N) and Fannie Mae (FNM.N) for a second day on Thursday

after Freddie pulled off its second successful debt sale

following Sunday’s announcement of a U.S. rescue plan for the

two housing finance companies.

Shares of the two pillars of the U.S. housing market surged

17 percent, adding to equally sharp gains earlier this week,

helped by stronger-than-expected earnings at JPMorgan Chase &

Co (JPM.N). Freddie was at $7.99 and Fannie at $10.78 in midday

trading on the New York Stock Exchange.

Freddie Mac issued $3 billion of two-year notes in a

regularly scheduled sale, supported mostly by central banks

that have been boosting purchases of the government-sponsored

enterprises’ debt throughout the decade. Central banks bought

57 percent of the issue, slightly more than usual, said Timothy

Bitsberger, treasurer at the McLean, Virginia-based company.

Demand from central banks and other international investors

is seen as a key barometer for the borrowing abilities of

Freddie Mac and Fannie Mae, which use more than $1.6 trillion

in debt to finance purchases of U.S. mortgages. Sharp falls in

the companies’ share prices last week on doubts of their

capital levels led to increased scrutiny of the debt sales.

Yield spread premiums narrowed after Thursday’s sale, a

move “that speaks volumes about the underlying strength that

exists in the marketplace,” Bitsberger said.

At least one non-U.S. investor has turned away from debt of

the government sponsored enterprises, or GSEs. The sovereign

wealth fund of Kuwait is not planning on adding any agency

debt, Mustapha al-Shamali, the country’s finance minister, said

on Thursday.

A plan announced on Sunday by the U.S. Treasury and Federal

Reserve to shore up Freddie Mac and Fannie Mae balance sheets

and borrowing capabilities, if needed, should be approved by

Congress swiftly, Anthony Ryan, an acting U.S. Treasury under

secretary, said in a CNBC interview on Thursday.

The plan, which has helped firm investor confidence, would

send a strong message to financial markets that the companies

have resources, Ryan said.

Investors sensing the need for Fannie Mae and Freddie Mac

to raise capital, which would dilute existing shares, sent

their stock prices down more than 60 percent this month.

The shares were helped by an emergency rule issued on

Tuesday by U.S. securities regulators to limit certain types of

short selling in major financial companies, including Fannie

Mae and Freddie Mac.

While the storm surrounding the companies appears to be

easing, they still face mounting losses due to delinquent

borrowers, rising foreclosures and pressure to increase their

exposure to the mortgage market as a way of stabilizing

housing.

Together, they own or guarantee more than $5 trillion in

U.S. mortgages. They have lost more than $11 billion since

June, and have predicted more losses to come.

A Moody’s Investors Service report on Thursday said the

threat to Asian banks from holdings of Fannie Mae and Freddie

Mac mortgage securities is limited.

(Editing by Dan Grebler)

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