NEW YORK (Reuters) –
Investors snapped up shares of Freddie
Mac (FRE.N) and Fannie Mae (FNM.N) for a second day on Thursday
after Freddie pulled off its second successful debt sale
following Sunday’s announcement of a U.S. rescue plan for the
two housing finance companies.
Shares of the two pillars of the U.S. housing market surged
17 percent, adding to equally sharp gains earlier this week,
helped by stronger-than-expected earnings at JPMorgan Chase &
Co (JPM.N). Freddie was at $7.99 and Fannie at $10.78 in midday
trading on the New York Stock Exchange.
Freddie Mac issued $3 billion of two-year notes in a
regularly scheduled sale, supported mostly by central banks
that have been boosting purchases of the government-sponsored
enterprises’ debt throughout the decade. Central banks bought
57 percent of the issue, slightly more than usual, said Timothy
Bitsberger, treasurer at the McLean, Virginia-based company.
Demand from central banks and other international investors
is seen as a key barometer for the borrowing abilities of
Freddie Mac and Fannie Mae, which use more than $1.6 trillion
in debt to finance purchases of U.S. mortgages. Sharp falls in
the companies’ share prices last week on doubts of their
capital levels led to increased scrutiny of the debt sales.
Yield spread premiums narrowed after Thursday’s sale, a
move “that speaks volumes about the underlying strength that
exists in the marketplace,” Bitsberger said.
At least one non-U.S. investor has turned away from debt of
the government sponsored enterprises, or GSEs. The sovereign
wealth fund of Kuwait is not planning on adding any agency
debt, Mustapha al-Shamali, the country’s finance minister, said
A plan announced on Sunday by the U.S. Treasury and Federal
Reserve to shore up Freddie Mac and Fannie Mae balance sheets
and borrowing capabilities, if needed, should be approved by
Congress swiftly, Anthony Ryan, an acting U.S. Treasury under
secretary, said in a CNBC interview on Thursday.
The plan, which has helped firm investor confidence, would
send a strong message to financial markets that the companies
have resources, Ryan said.
Investors sensing the need for Fannie Mae and Freddie Mac
to raise capital, which would dilute existing shares, sent
their stock prices down more than 60 percent this month.
The shares were helped by an emergency rule issued on
Tuesday by U.S. securities regulators to limit certain types of
short selling in major financial companies, including Fannie
Mae and Freddie Mac.
While the storm surrounding the companies appears to be
easing, they still face mounting losses due to delinquent
borrowers, rising foreclosures and pressure to increase their
exposure to the mortgage market as a way of stabilizing
Together, they own or guarantee more than $5 trillion in
U.S. mortgages. They have lost more than $11 billion since
June, and have predicted more losses to come.
A Moody’s Investors Service report on Thursday said the
threat to Asian banks from holdings of Fannie Mae and Freddie
Mac mortgage securities is limited.
(Editing by Dan Grebler)
Major Newsire & Press Release Distribution with Basic Starting at only $19 and Complete OTCBB / Financial Distribution only $89