Freddie, Fannie rise as bailouts called 'not inevitable'
WASHINGTON - Shares of Fannie Mae and Freddie Mac soared yesterday in a respite from their battering in recent days, while some regional banks saw their stocks sink on worries they could be swept up in the turmoil surrounding the mortgage finance giants.
Freddie completed a $2 billion debt sale, and a Wall Street analyst said a government bailout of the mortgage finance giants may not be inevitable.
But a few regional banks with significant holdings in Fannie and Freddie preferred stocks followed the rest of the market down amid questions over whether federal regulators would step in to rescue the two government-sponsored companies.
Shares of Freddie jumped 48 cents, or 17.1 percent, to $3.29, while Fannie climbed 19 cents, or 3.8 percent, to $5.19.
Citigroup analyst Bradley Ball said in a research note that federal bailouts "don't necessarily wipe out all" company shareholders, and that Fannie and Freddie still have options despite their steep stock declines in recent weeks.
"We are not convinced that [the government] needs to take any action over the near term," Ball wrote.
But Len Blum, managing director and partner at investment bank Westwood Capital in New York, said yesterday's rebound is likely to be temporary, as the companies' ability to raise capital on their own appears uncertain.
"The market thinks they're going to be nationalized," Blum said. "People have confidence in the debt, not the equity."
Freddie's sale of $2 billion in short-term debt was well received on Wall Street, but the company had to sweeten terms of the offer to lure demand, investors said. "We saw very good demand for today's deals," said Freddie Mac spokesman Michael Cosgrove.
In the coming weeks, Wall Street will be watching the results of several such auctions by the two companies. Sean Egan, manager of the ratings desk at Egan-Jones Rating Co., estimates the two companies have a combined $295 billion in debt coming due by year-end.