Breaking News, World News and Taiwan News.

Updated Thursday, August 21, 2008 0:00 am TWN, By Stephen Bernard, AP

Sponsors
▪	Save 75% for all hotels in Shanghai, Beijing and whole China. Lowest rates for Flights in China.
▪	Get the best deals for Guangzhou Hotels or choose from more than 10,000 hotels in 499 Chinese cities.
▪	Find great real time deals on China Flights. Book flights to China or China domestic flights 24/7.
▪	Buy china wholesale products from reliable chinese wholesalers on DHgate.com!

Fannie and Freddie’s ability to raise capital ‘uncertain’

NEW YORK -- As mortgage financiers Fannie Mae and Freddie Mac struggle with continuing credit losses, their ability to raise needed capital is uncertain and, analysts say, is complicated by the possibility of a government bailout of the two companies.

“We’re in uncharted water with this,” Bert Ely, an Alexandria, Virginia-based banking industry consultant and longtime critic of Fannie and Freddie, said Tuesday.

Published reports about a possible bailout, continued quarterly losses at Fannie and Freddie and further deterioration in the credit markets have investors concerned about the mortgage companies’ solvency. Those worries have sent the companies’ prices tumbling, with Fannie falling another 4.49 percent and Freddie sliding 5.01 percent on Tuesday.

A government bailout is widely considered the least attractive alternative to help the mortgage financiers shore up their balance sheets because investors are worried that federal intervention will wipe out the holdings for any non-governmental investors, said Brian Gardner, a senior vice president with Keefe, Bruyette & Woods Inc.

Last month, the Treasury Department agreed to provide support to Fannie and Freddie, which collectively own or back about US$5.3 trillion in mortgages, about half the nation’s mortgage debt. The support could come in the way of loans or an equity investment by the government to help support the mortgage companies. It is widely assumed any equity investment by the government would take a senior position above all other investors — in other words, should the companies become insolvent, the government would recover money before others who have invested in Fannie and Freddie.

Over the past year, homeowners have increasingly defaulted on mortgages, which has led to billions of dollars in losses for the pair of government-sponsored enterprises. That trend has also been one of the leading culprits in the deterioration in credit markets that has made it more difficult for companies in general to raise new capital.

Freddie has said it is committed to raising US$5.5 billion to help shore up its troubled balance sheet — that is nearly twice the size of Freddie’s current market capitalization of about US$2.84 billion.

Fannie’s market capitalization is about US$6.58 billion. Friedman, Billings & Ramsey Co. analyst Paul Miller estimates Fannie needs to raise between US$5 billion and US$10 billion in new capital.

1|2|Next Page>>