Banking, finance, and taxes
US May Put $15 Billion Into Fannie Mae (FNM) And Freddie Mac (FRE)
Published:
In an attempt to save Fannie Mae (FNM) and Freddie Mac (FRE) from becoming insolvent, the US Treasury is reviewing a plan to put $15 billion in new capital into the companies.
According to The Times, "The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders."
Because Fannie Mae’s market cap is now only $10 billion, and Freddie Mac’s is only $5 billion, a cash infusion could cut the value of the common stock in the two companies by two-thirds or more.
The plan would involve money which ultimately comes from US taxpayers, but shareholders in the two firms would be nearly wiped out.
If the two companies fail, the mortgage markets could fall into tremendous disarray causing more write-offs at banks and making home loans much harder to get
On that basis, the bail-out is cheap.
Douglas A. McIntyre
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