Freddie, Fannie Decline Diminishes Prospects of New Investors

Bloomberg (08/25/08); Kopecki, Dawn; Harrington, Shannon D.
Speculation about a potential bailout of Fannie Mae and Freddie Mac by the federal government sent their common stocks down last week to more than 90 percent for the year and more than doubled the yields on their preferred shares. Potential investors, meanwhile, are concerned about investing in the mortgage finance giants until they have a better idea of how the Treasury Department would assist the companies. "They've got themselves in this negative loop where the only way they can raise capital is for the Treasury to put something in'' first, says Paul Miller, an analyst with Friedman Billings Ramsey in Arlington, Va. He believes they may need to raise at least $15 billion to show investors they have enough capital; and Bill Gross, a bond fund manager at Pacific Investment Management in Newport Beach, Calif., believes the Treasury may have to buy a combined $60 billion of preferred shares by October.