Fannie, Freddie Take Another Beating on Bailout Fears

Falling market caps raise investor fears of government action
By Clay Dillow,  Newser Staff
Posted Aug 19, 2008 6:51 AM CDT
Investors bailed on Freddie and Fannie on Monday, fearing a government bailout of the two government sponsored enterprises would render existing stock worthless.   (AP Photo/Jin Lee)
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(Newser) – Share prices of Fannie Mae and Freddie Mac took another precipitous plunge yesterday as investors fear the home mortgage giants will not be able to avoid a government bailout, the Wall Street Journal reports. An article in Barron’s stoked smoldering concerns that the companies will not be able to raise more capital by selling shares and that a Treasury bailout will render existing shares worthless.

"I think every day that goes by without the companies raising capital, the possibility of the Treasury stepping in increases," one analyst said. Dwindling market caps at both companies mean raising even modest sums through common stock offerings would dilute existing stockholder value substantially. A treasury spokeswoman played down the idea of a bailout, but in late trading, Freddie shares were down 25% and Fannie's 22%.