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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
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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%.

Investors bailed on Freddie and Fannie on Monday, fearing a government bailout of the two government sponsored enterprises would render existing stock worthless.
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)
Freddie Mac's market cap has dwindled to $2.8 billion over the last several quarters, stoking market fears that it can't raise capital without government assistance.
Freddie Mac's market cap has dwindled to $2.8 billion over the last several quarters, stoking market fears that it can't raise capital without government assistance.   (AP Photo/Pablo Martinez Monsivais, file)
Treasury Secretary Henry Paulson's office denies his office is on the brink of buying into Fannie and Freddie, but an article in Barron's swept investor confidence the other way.
Treasury Secretary Henry Paulson's office denies his office is on the brink of buying into Fannie and Freddie, but an article in Barron's swept investor confidence the other way.   (AP Photo/Manuel Balce Ceneta)
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Fannie, Freddie tumble to lowest point in nearly two decades
CNN

Treasury: no plan to bail out Fannie, Freddie
Reuters

Taken in by 'Liar Loans,' the market remains sour
Associated Press

 
Barron's • Freddie Mac • market capitalization • Fannie Mae • Treasury Department • credit crisis • subprime crisis • financial crisis

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