Freddie Mac, Fannie Mae Plunge on Capital Concerns
July 7 (Bloomberg) -- Freddie Mac and Fannie Mae fell to the lowest in 13 years in New York Stock Exchange composite trading as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.
Freddie Mac fell 18 percent and Fannie Mae dropped 16 percent after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.
``There's a lot of apprehension about writedowns,'' Tierney said. ``If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking.''
Fannie Mae and Freddie Mac shares plunge
One of the strongest warning signals came Monday, when shares of two of the nation's most important housing barometers, Fannie Mae and Freddie Mac, plummeted. After falling remorselessly over the past month, in just one day Freddie Mac tumbled nearly 18 percent, and Fannie Mae lost 16 percent.
Stock prices of both companies — the nation's largest buyers of home mortgages, and traditionally the government's backstop for the housing economy — have each declined by more than 60 percent this year. Those falling prices, along with the rash of write-downs, declining stock prices and red ink at the nation's largest banks reflect a growing conviction among investors that the current housing slump will last longer, and prove more severe, than initially feared.
As a result, investors are signaling that they are far from convinced that any enterprise — even one with the strongest backing — can successfully navigate these choppy waters, and that those who do persist will pay dearly to survive.
"Everything points to a lot more bad news to come," said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Virginia "If Fannie and Freddie are vulnerable, it means no one is absolutely safe."
Currently, futures for DOW, NASDAQ and S&P are all pointing lower for tommorow's opening. In addition, the following data products will be released tomorrow:
- International Council of Shopping Center Store Sales
- Pending Home Sales
- Wholesale Inventories
- Consumer Credit
Later this week: other data to be released:
- Jobless claims
- Import/export Prices
- Trade Balance
- Treasury Report
- Consumer Sentiment
Bottom Line: Economic reality is finally sinking in and I expect the DOW to fall/close below the psychological threshold of 11,000 THIS WEEK! Though not true chart resistance, it will be a big deal in the financial media.